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Mann Overboard

JUST ANOTHER RECORD BAD WEEK

MARCH 20 (EVENING) – I had thought the markets had calmed down and it wasn’t much of a week.  Then I read this was one of the worst weeks since 2008.  I thought last week was.  Or the week before that.

I don’t have much to add to my lengthy post two evenings ago.

New lows should be set next week.  The question is will we have the largest declines to date – which would see more 3000 point down days.  Or will this be a moderate decline.  It is tough to see the DOW taking on another 3000 point down day or two.  But, …..

In trying to fine tune a range for a bottom, nothing has changed the 14,400 to 18,400 figures.  But, 15,500-15,700 is now looking good for a more precise bottom.  As I said initially, I think the low will be towards the bottom of the range.  I just can’t see us having an intermediate term bottom above 17,000.

The subsequent rally should return to the 21,000 area.  I didn’t think much about that, but then I realized that could be a 40%-50% rally.  I guess that isn’t something to sneeze at.

But, first let’s get down to the bottom.

VOO did have -$1.3 Billion this week.  So, it moved to the outflow list.  But, for the week investors poured over $6 Billion into stock ETFs.  This is insanity as the market crashes.  When tens of billions of dollars of funds are being taken out of stock ETFs we will be nearing a bottom.  We have a long way to go.

Remember, no need to be alarmed about the number of China Virus cases soaring for the next 4 weeks.  Experts say the cases should peak out by the end of April.  When optimism kicks in at the cases leveling out and then declining, don’t get carried away.  We are still in a major economic downturn that has only just begun.

For those looking for some perspective re the virus.  Wuhan had its first case on November 17th.  This week no new cases were reported in all of China.  From nothing to nothing in 5 months.  I forget when we had our first case – mid-February?  5 months gets us to July.  But, we got on top of this earlier than China did and the virus doesn’t like temps above 80 degrees and Summer is coming.  So, things are looking real good for the USA to be working on wrapping this virus up in May and June.  Let’s hope, eh.

Regarding real estate….I have heard that renters are leaving apartments to go to rental houses.  Less chance of catching the virus in a freestanding house.  Also, people are recognizing what I have been screaming about for decades – big cities are dense and it is easy for a virus to spread to the masses.  Ask the Big Apple about that!  Suburbs and especially rural areas are where people need to move to.  The jobs will follow.  The decay in our largest cities will accelerate as crime festers, diseases run rampant, homelessness gets out of hand, taxes are too high, traffic is a nightmare, on and on.

Thanks to those that have sent me information to look at.  I have found several new sources I will follow.  I truly appreciate it.

We just got our first known case of the virus in Aiken today.  We shall see how it plays out locally.

Learn to enjoy time at home with the family….like we used to before the internet ruined everything.  Put a dent in those honey-do lists:)  I know I am getting a lot done around the farm.

Stay safe.

My next update will be Monday evening.

Godspeed.

The Mann

Mann Overboard

THE DECLINE IS NOT COMPLETE

MARCH 18TH (EVENING) – The DOW closed below 20,000 for the first time since 2017.  Today’s low was 18,917.  Nothing occurred in the last two days that would change my range forecast for an intermediate bottom.  All I can say is further declines are ahead.

And this is a way too long post.  But, I had lots of things on my mind:)

I saw an indicator that may be useful in telling us when an intermediate bottom is occurring.  I will share this one with you so you can follow it yourself.  Go to this web page:

https://www.etf.com/etfanalytics/etf-fund-flows-tool

There is a table for the Top 10 Creations (aka inflows, people buying) and Top 10 Redemptions (aka outflows, people selling).  Then look for the Vanguard S&P 500 ETF (VOO).  Incredibly over the past two weeks people have BOUGHT over $12 billion of this ETF.  In the first phase of a Bear Market, the public buys the dip thinking the market will rally back to new highs.  This is when the Smart Money sells their holdings to the public so they get caught holding the bag as Joe Granville would say.  When you see VOO in the Redemption column, then we might be near a significant bottom.  When VOO is being sold in HUGE amounts then we know the public has thrown in the towel and never want to own stocks again.  Remember that for every transaction there is a buyer and seller.  So, when the public finally caves the Smart Money will be buying everything the public dumps.

Another indicator many traders follow is called TRIN.  I won’t explain it here (I am sure somewhere on the web it is explained).  But, amazingly, this indicator is at a level seen at market tops.  Not market bottoms.  Like VOO above, there is massive buying going on.  There is no panic.  All the way down people have been buying and buying.  In fact, two friends told me their advisors said to just keep buying as the market declines.  Those advisors get paid for such brilliant advice:(  For those who know about TRIN, when we see 5-day average readings over 1.60, then we start looking for a bottom to occur.

Some items of note.  As of today you can pay the government interest to hold your money for 4 weeks to 3 months.  Negative interest rates have arrived in America.  I do hope banks will soon pay us interest on the loans we get from them:)

I saw this information from an automobile expert and wanted to add Auto Dealerships to the list of commercial properties that will likely see significant closings and bankruptcies.  If all auto dealerships are forced to close (like many other retail establishments….and supposedly one state has required dealerships to close, already) for 1 week, it will cost the car industry $7.4 billion and 94,400 American jobs.  The government will lose out on $2 billion in taxes.  But, that is now insignificant when trillion dollar bailouts are being handed out.

Remember that is only one week of closure.  As we have seen, closures are much longer than that.  Banks need to be looking at their floor plan and real estate loans immediately.  As I have tried to explain for almost 30 years, an auto dealership is never the highest & best use of a site.  It is an interim use from the day it is built.  This special purpose property type is going to result in a lot of losses for lenders.  It is time to get those loans in order.

As for auto stocks, it is likely all of them will go bankrupt.  If I recall right, only Ford did not go bankrupt in The Great Depression II ten years ago.  I wonder how the people that bought the great Tesla stock at $969 feel with it hitting $350 today.  I wouldn’t be surprised to see it fall another 50% and hit a new annual low below $175.

Almost no one pays attention to parabolic patterns and what happens when they occur.  I learned about this from one of my idols, Joseph Granville, back when I was a teenager in the 1970s.  Essentially when something has a blow off parabolic rise it gives up the entire gain when it crashes.  Or at least say 85%-95% of its gains.  There are probably hundreds of stocks that have graphs showing a parabolic rise and this subsequent crash.

Oil crumbled right thru $25 and bottomed near $20 today before having a dead cat bounce back to $23 at the close.  I believe it was yesterday that Morgan Stanley said that oil would hit $30.  It closed at $28.  They get paid the big bucks to provide such wonderful advice:)

As for the China Virus, an American in Wuhan said only one new case has occurred in the past week.  Wuhan is basically back to normal.  And China did nothing like the USA has done to slow this virus down.  So, I am wondering if a month from now we will see optimism as the number of cases rolls over and starts to decline.  Maybe Tax Day will have a bit of silver lining.  The next two weeks will be bleak as the number of cases soars due to tests finally occurring.  But, a month from now we may see a light at the end of the tunnel that is not a train coming at us.  Always think ahead.

A few side thoughts.  First, this crisis should set globalization back many decades.  I think countries, especially America (finally!), realize the importance of not relying on other countries for critical goods.  Of course, most countries are small and have no choice.  But, for America to let Asia take over production of so many items is (you fill in the word).  Because of globalization the average American wage has not increased for 50 years in real terms.  It is all about greed – corporate greed and individuals having the desire for everything they buy to  be cheap (or even free!) but wanting to get paid more and more.  We can’t have it both ways.

Second, the China Virus might have finally made telecommuting a significant reality.  25 years ago my MBA group wrote a paper that telecommuting was not going to take over as was being projected at the time.  The experts were saying that by the Year 2000 most people would be working at home.  We argued that the human species was a social animal and wanted to deal with each other in person.  We were right.  In the past 5 or so years many companies have changed their policies and required all employees to come into the office.  It might have taken an annoying little virus to finally make working from home go mainstream.

I wanted to give a shout to a few friends (not by name).  One told me a month ago to get ready for martial law.  I believe his prediction will come true any day now.  Even the California Governor said today he has the right to invoke such.  I believe the ONLY way to stop this virus is to lock down the entire country.  People just aren’t listening to what they are being told to do.  Of course, the leftists will say yep we told you Trump wanted to be a Dictator:)  As Ron White says, you can’t fix stupid!

Another friend said he bought some S&P 500 Puts and was up 10x.  That was yesterday, so he is up more after today.  It is good to know someone plays the downside.  Options are extremely difficult to trade.  It is pure gambling (as my mentor said, the stock market is the world’s largest casino).  I would not recommend trading options to anyone.  You can buy ETFs that are short the stock market or industries or many things.  And there are 2x and 3x ETFs that will magnify the move by those factors.  Unlike options, ETFs do not have time decay working against them.

It is always easier to make money in a Bear Market than it is in a Bull Market.  But, 99% of the public never plays the downside.  And every time we have a Bear Market people start screaming to make short trading illegal.  Too funny.  It is ok for insane buying to push markets to unsustainable levels.  But, it is not ok for people to push the market back to fair value and then down further to bargain levels.  Stop complaining and learn how to play the game or get out.

Some of you have passed along information on the few people that predicted this downturn in advance.  I sincerely appreciate it.

As for investments, I obviously cannot give any specific advice.  This blog just provides my thoughts for all to see.  It helps me get things in print.  It reminds me of things to watch for (like VOO and TRIN).  And it actually does help some people with their investment decisions.

Thankfully, my wife and step-daughter listened last August/September and let me put their retirement 100% in cash.  I think the only time they listen to something I say is when it is about the stock market:(  They missed the last 10% of the Bull Market.  But, they have had no worries in this crash.  And we have enough toilet paper, so no worries outside the market either lol  As I tell people, I do follow my own advice with my investments.

Lastly, my step-daughter is selling her horse farm (hopefully, it closes in 3 weeks).  Great time to sell.  She has been looking at houses to buy right away.  I am thinking she might want to hold off until Fall.  By then, many local businesses will have failed.  Few people will be buying this Summer.  Sellers should become desperate.  I am seeing my thoughts about residential real estate start to form as I write this.

I remember the only good buy my wife and I ever made was in 1992 when we saw a house for sale in a neighborhood we liked.  Doing some research (before the internet was used for such) we found out the owners were losing the restaurant they owned and needed to sell and move in with their parents.  We offered almost 20% below the list price and our realtor said don’t hold your breath.  We said give them the offer and tell them they have til 11pm tonight to make a decision.  We got a call at 10:30pm that they accepted the offer straight up.  Every other house we ever bought we lost money on:(  Typical of many of us appraisers eh:(

Don’t be afraid to buy low.  It is the best way to make money:)

My email is GeorgeRMann@Aol.Com

Yell anytime.  Pass my blog along to anyone you want.

Please stay safe.  Take extra precautions for the elderly and sickly.  Go out of your way to buy what they need for them so they don’t have to go out in to the public and risk their lives.  Remember to sanitize everything you do buy for them before they touch it.

It is better to give than to receive.  Pass it forward.

Godspeed

The Mann

Reviewer Thoughts & Tips

EXTRAORDINARY ASSUMPTION ABOUT CORONAVIRUS

MARCH 16TH – I am seeing appraisal reports that have added an Extraordinary Assumption about the coronavirus.  I was asked today by an appraiser if he should add such to his reports.  My answer is Yes.

I won’t cut and paste what I have seen in reports.  That wouldn’t be cool – and not ethical really.  You can come up with something quickly.  I would add this immediately.

The Mann

Mann Overboard

DID ANYONE ELSE FORECAST TODAY’S FIRST-EVER 3000 POINT DECLINE

MARCH 16TH (EVENING) – I am curious if anyone has seen anybody else predict that a 3000 point drop in one day would occur asap.  Please email if you saw someone do such, as I like to keep up with such people who know how to forecast well.

For those new to my blog, there are two additional posts on this topic that will catch you up on how things have been playing out.

Please feel free to pass my website along to others.  Although the short-term future is bleak, having a clue of what is coming helps alleviate the fear of the unknown.

Like The Great Depression II, this downturn has been easy to forecast.  Hopefully, it will stay that way.

I mentioned that 14,600 to 18,400 is looking like a likely range for a bottom of some type – not sure, yet, if it will be an interim or final bottom.  Interim seems more likely.  With more information every day the market plays out, this range can be narrowed.

After today, I would narrow this range to 15,400 to 18,400.  Also, there is a low-percentage chance of an interim bottom occurring in the 17,800-18,200 range.  If a bottom occurs in that range, the rally will reveal if that is an interim bottom or just a temporary stop on the way down to an interim bottom.  The odds are higher the market will decline thru 18,000 towards an interim bottom a few thousand points lower.

I would not be surprised if we get down to 18,000 tomorrow.  The markets are moving that fast.  By the way, the volatility of the last 3 days last occurred in 1929.

The decline in Oil is just ahead of the stock market.  I haven’t tried to come up with specific targets in this market.  But, I am thinking an interim bottom is forming in the $25-$30 range.  This should be followed by a rally to $40 and then a decline back to a major low in the $25-$30 range again.

I still think it is too early to buy stocks.  Especially when we are still in the midst of a Wave 3 (various degrees for those who follow wave theory) and Wave 3 is the most severe wave.

A side note…for the first time in history T-Bill rates briefly went negative today.  Simply amazing the number of people worldwide willing to pay sovereign governments interest.

More of a note to myself, if Gold is truly in the last wave of a major Bear Market, then the target range is $829 to $928 an ounce.

Stay safe.  Remember President Kennedy’s great quote:

Ask not what your country can do for you — ask what you can do for your country.

All 320 million of us are in this virus fight together.  Do your part and this will be over sooner than later.

Godspeed.

The Mann

 

Mann Overboard

REAL ESTATE AND STOCK MARKET THOUGHTS

UPDATE – Evening of Sunday March 15th – Poor Caesar died on this date.  He would have fully related to our current times as we are living out The Fall of The Roman Empire II.

Like a good little boy doing as he is told, the Fed lowered interest rates all the way to 0%.  I thought they might do it in a few steps, but this time they did exactly as the market told them.

And like a few weeks ago, DOW futures are down over a 1000 points.  I have always said it is easier to predict events in a downturn than in a bubble.  Bubbles extend higher and longer than anyone expects.  The masses in panic mode is the same crisis after crisis after crisis.

And to another wild week we head in to….

The Mann

UPDATE – Saturday March 14th – Carl Icahn has essentially created The Big Short II.  You might need to cut and paste this URL:

https://www.cnbc.com/2020/03/13/icahn-reveals-his-biggest-short-position-amid-market-turmoil-commercial-real-estate.html

I would like to know what Sam Zell thinks.  He is the greatest real estate investor of the past 30 years.  If anyone sees anything from him, please pass along to me.

If Icahn is correct (he is a billionaire, so he has obviously been successful, but I know firsthand of some large losses he has incurred over the years….so he isn’t a perfect indicator of things to come), I would be out of CRE.  Financial institutions take note.  Investors take note.  Of course, there will be pockets that don’t do as bad as the overall market.  And if you know your local market better than anyone, then you might be able to find true bargains sooner than later.  There will likely be the normal OREO market for deals, also.

A side note regarding stocks.  You will hear a lot of pundits saying stocks are better priced than they were (no duh!).  That some bargains are out there, even if we are not at a bottom.

To be clear, we have NOT had stock bargains since the August 1982 bottom.  I might concede NASDAQ stocks after the Dot.Com Bubble burst might have hit bargain levels.  But, neither real estate nor stocks went down to bargain levels in The Great Depression II.  Look at the Schiller Price Index and you will see that home prices only got down to fair value.  And that is what I am trying to get to re stocks….this initial decline is simply wiping out excess over valuation bubble prices (enough adjectives 🙂 ).  No way are stocks at bargain levels (individual exceptions might exist….e.g. some oil stocks look darn cheap).  Stocks likely aren’t even down to fair value, yet.

This isn’t to say that The Great Depression II  won’t repeat itself and real estate and stocks bottom out at fair value.  Just remember, we are not at true bargain levels until (Bloomberg now owns it) BusinessWeek or Barron’s run the infamous August 13, 1979 headline ‘The Death of Equities.’  Will we get that low is tough to determine at this time.

The Mann

UPDATE – Evening of March 13, 2020 – Yesterday we approached nearly 3000 points down at one point.  As forecast, the 2000 point move was surpassed.  Today saw the largest point gain ever – almost 2000 points.  Every day this week saw over a 5% move.  Volatility (VIX) is at levels last seen in October/November 2008.  That was 5-6 months before the March 2009 bottom.

A range for the Bear Market bottom is starting to come into focus.  Albeit, it is really early to narrow the range.  Based on past crashes, a bottom should occur in the 14,600 to 18,400 range.  Analyzing the waves that are unfolding a low below 17,500 is probable.  I think the lower area of the range is most likely.  Again, it is VERY early, so I am sure I will refine this forecast as the waves unfold.

The waves are at the point where next week could see the worst of the decline to date.  That is hard to believe after all we have seen.  But, if it unfolds as expected, we might well be in the range noted above by this time next week.

A few side notes about a few myths that the masses assume to be true.  I am a gold bug, but gold is not a safe haven (nor is Bitcoin….I think it got down to $4000 this week).   Gold dropped about $175 in the past few days.  Although, it is challenging for me to see how it will happen, the long-term forecast for gold is $700 to $1050.  As always, we shall see.

The other myth is bonds being a safe haven.  On the day the Fed lowered rates 50bp, the market was down over 1000 points.  In declines this past week, everything was being sold.  Cash was king.  BTW, the markets are telling the Fed to lower rates up to 100bp.  I doubt they will go that far.  But, as the Fed follows and never leads, it will do as it is told.  Note, rates are nearing 0% so this catalyst for a rebound is about to be eliminated from the Fed’s toolbox.  Assuming the World doesn’t implode in this downturn, in the next crash following the next bubble the Fed will use its last tool – pumping trillions in to the marketplace.

More on Monday evening.  I am trying to update my forecasts Monday, Wednesday, and Friday evenings.  At least until things finally calm down.

Everyone be safe.  Follow the instructions from the CDC.  As they say, this too shall pass.

Godspeed

The Mann

March 11, 2020 – I will start a new post to make it easier for readers.  For those  who are seeing this post for the first time, I have a post on this blog that started with the significant decline that started a few weeks ago.  You can read thru it to get caught up on things.

Another week of up and down 1000+ point days.  For the few who watch volatility (aka VIX for true followers of the markets), this period was sure to occur.  Late last year we had gone thru one of the longest periods with the market not moving more than 1% in a day.  I think it was over 100 days.  Absurd calm as the stock market went straight up into a blow off top.  Welcome back to reality traders.

The only observations I have at this point is that this current decline should definitely go below 22,100 with 19,100 being a nice target.  But, that might be too high based on my next observation.

Not what many people want to hear (only those who are on the sidelines or short will like it).  The waves are lined up for what we call 3 of 3 – this is the point of major acceleration in the direction of the larger move.  The 2000 point down day we recently saw will be dwarfed.

Trading is halted when the market (S&P 500 specifically) falls 7% in a day.   The next halt is at 20% I believe.  We may not quite make it to that second circuit breaker.  But, I will be sure to turn on the TV and watch that amazing site, if it occurs.

I have been asked about real estate.  Before I guestimate a forecast, let me mention that so far this Winter 34 million (!!!!!!!) Americans have got the flu.  Can you imagine how many work hours have been lost.  How much income lost.  What if we tried to stop the flu for a Winter?  Instead of a little beer virus.  It is likely more people die every day in car accidents than will die from the beer virus.  Imagine if we eliminated all driving for a month.  We would save thousands of lives.  Perspective people.  But, the Fake News Media has no perspective.

Real Estate is a bit difficult to project at this early stage.  Obviously, real estate markets fall long after the stock market has declined.  That is simply due to real estate moving much slower.

We know for sure that the hotel industry is getting hit hard now and likely will be thru the Summer.  People won’t want to travel anywhere for awhile.  Retail properties will be hurting for awhile, too.

I am no fan of Amazon, but they are in the best position – you can order anything and have it delivered and with oil prices down delivery costs for Amazon and WalMart and such are cheap.

I imagine we will see many bankruptcies in the energy industry.  So, lenders with loans to such entities will sustain significant losses.  Individual hotels may not default, but they should be watched closely as those with high leverage may be in trouble.

I would think apartments, industrial, and office properties would be least affected.  Obviously, companies in troubled industries that are tenants in these property types might vacate.  Especially if they declare bankruptcy.

I am thinking land acquisition, and all acquisition really, will slow down significantly.  Essentially, those real estate investors that use money from their stock market profits to buy properties are gone.  With a 20% loss they are frozen in their tracks. Even if they are up 40% for the past year or such, they are still hurting.

Like a major Election (yep 2020 has one of those), everyone will want to stand by and see how this just labelled pandemic plays out.   The problem is even if it goes away like SARS or MERS or Legionnaire’s Disease (going way back, eh folks) that won’t occur til this Summer and then people will put things on hold for the Election.  2020 is snake-bitten.

For those of us that were wondering what would take the blame of being the black swan this time around, we now what it is.  But, remember the markets are not telling us about their concerns today.  They are telling us about their concerns around Labor Day.

People may fear the beer virus.  Personally, I cannot even imagine what the real bad news is going to be this Summer/Fall!

So, for real estate, I would not be buying much.  Industrial may continue its strength as even more goods will be shipped to consumers.  Apartments depend on demographics, so the beer virus is not a significant issue.  Vacant land will likely just sit until the next upturn comes along.  Office could get hurt if bankruptcies occur that result in unemployment going up.

I have defended Retail all along because even if 12% of sales are online, 88% of sales are local brick and mortar.  Plus, online sales are just today’s version of catalogs in the past (which also had goods shipped by mail).  But, restaurants and lifestyle centers/malls likely will have fewer customers as people stay away from crowds.  It will likely depend on the tenant as we still have to get many items at retail stores and in person.

Lastly, another thought that came to mind….is this the nail in the coffin for globalization?  Globalization was on its way out over the past 4 years.  But, this certainly made every country focus internally.  Keep their people at home.  Support their local businesses.  Keep outsiders away.  It’s early, we shall see how it plays out.  Of course, I fully suspect the Fake News Media will associate the global downturn with this move to nationalism and say hey that shows globalization is better.  Certainly not the case, but the FNM promotes lies, not truths.  Just now President Trump has banned al travel from Europe to the USA for 30 days.  Wow.  Hunker down folks and buy American:)

I hope my thoughts help you think things out.  Like anyone, I am not 100% right in my forecasts.  So, think things thru yourself.  Situations vary for a million reasons.  So, know your situation.  Just don’t listen to the pundits on the business channels or radio or wherever.  Think for yourself.

I will just say, those who know me, know I live for major downturns.  2005-2011 was a dream and very easy to forecast all the way thru it.  I am not as confident about this downturn, but will do my best to nail most of my forecasts this time around, too.

You can email me at GeorgeRMann@Aol.Com.   Always interested in your thoughts, ideas, comments, questions, et al.

Remember, don’t panic.  The only way to succeed in investing is to do the opposite of the masses which Buy High and Sell Low – you need to Buy Low and Sell High.  Buying low is one of the toughest things to do on Earth.  The entire world will be negative.  Your stomach will be full of butterflies.  You will have major doubts.  But, you can smile and know that is the time to buy:)

Godspeed.

The Mann

Mann Overboard

THE BEAUTIFUL STOCK MARKET DECLINE THIS WEEK

UPDATES AT BOTTOM….last one Morning of March 9

February 27, 2020 – I know, I am one of the few people that enjoy market declines.  But, I have always said I was born to deal with Bear Markets.  Bear Markets are when you invest for the upcoming Bull Market.

I was just thinking last week that nothing could stop this market and when I have always had those thoughts a top would occur.  Many indicators were at extreme readings and sure enough this decline was likely to occur.

Gold is in a toppy range because it started to move $50 a day.  Gold tops occur when gold gets very volatile.  This isn’t to say a move into the $1700s cannot occur.  Just saying that the time for a top has been activated.

As for the market, let me try to make this very clear – this decline is NOT about the coronavirus.  The stock market reflects social mood about events 6 months in the future – not today!  The first two quarters of 2020 should be just fine for companies.  The question to answer is what has spooked the market about July-September of this year???

The first thing that came to my mind was when is the Democratic National Convention occurring.  That is July 13-16th.  Who can be nominated that would shock the markets?  Wall Street would clearly be worried if Pocahontas was nominated – and wins in November.  I am not so sure they are worried about Bernie Sanders.  Maybe they are worried about a Sanders/Warren ticket?  Regardless of what will occur this Summer….just know that it will occur and it will be shocking.  So, unlock the masses, don’t be shocked when it occurs….whatever ‘it’ will be.

As for a dead cat bounce rally in the markets, today’s low was 25,752 in the DOW 30.  It is likely a lower figure will be hit on Friday since the markets closed at their lows.  Wherever this temporary bottom occurs, a rally of at least 1500 points should occur.  That is a minimum.  I can tell more once that rally is finally underway.

In the interim, hold on tight.  The November Election will have a larger effect on the market than the coronavirus.  Around April or May the markets should telling us how the Election will play out.

And don’t forget about 23,377 I discuss in a prior post.  10 days ago that seemed out of play.  All of a sudden, it is a figure to keep an eye on.

As for the beer virus, educate yourself as always.  Over 16,000 (maybe as high as 48,000) Americans have died this Winter already from the flu!!!  Coronavirus has been around since the 1960’s.  Lysol cans say it kills coronavirus (maybe not this new strain).  This is nothing new.  We do not have vaccines for ALL of the flu strains.  We simply guess at what ones might appear this Winter.  But, the strains we guess wrongly on will hit the masses.  Why would it be different with coronavirus.

Wash your hands and cover your mouth – simple logic for all of the time.  Oh, and don’t buy masks.  They won’t help at all.  Not even professional medical masks will help (unless you are a professional who knows how to wear them….and they say even then, it would have to be worn all of the time).  The Fake News Media always has an agenda.  Almost always that is a bad Agenda.  As always, educate yourself and ignore whatever the Fake News Media says.

UPDATE Evening of February 28, 2020 – That was a week for the ages!  Simply beautiful to look at the charts.

Today proved the masses wrong that think when stocks go down, gold goes up.  Gold had its worst day since 2013.  When people panic they sell everything….except T-Bonds which they run to for security.  T-Bonds are at record highs.  Which, of course, means there is only one way to go:)

It is doubtful today’s low of 24,681 is the low for this initial move.  But, if it is, a counter trend rally should carry to the 26,500-27,700 range.  But, first we have to see if Friday’s low hold.  Should be another interesting time next week, volatility will start to subside.

UPDATE Evening of March 2, 2020 – Well, the largest declines in history were followed by the largest rally in history today.  In one day, the DOW rallied to the target range noted above and closed at 26,703.  The markets do in a day or week what used to take months and years.  Amazing to watch.

Although I think most of this rally has already been achieved, I believe the market will become range bound for a week or two.  We need to simply settle down and let all of the indicators get back to being meaningful.  Time needs to unfold for awhile and projections will become fine tuned.  I am not a buyer at this time.  I want to let some time pass by and see where we stand.

As an aside, the markets are telling the Fed to cut rates by 75bp.  I suspect a 50bp cut will occur first as the additional 25bp might come into question over the next week or two.  100% of the time the Fed takes action AFTER the market has already made its move.  The Fed has NEVER taken preemptive action.

Update Evening of March 5th – The trading range is occurring. My initial target of 27,100 has now been hit almost to the dollar twice in the past few days.  No way I am thinking that will be the top of this rally.  The market is too volatile.  With more days in the books, it looks like 27,500 to 28,100 is a good range for the top of this rally to occur.  The scary part is when this rally ends the subsequent decline should be more than 5000 points.  I would say 8000 points would be likely.  That would tell me that come the end of Summer and beginning of Fall the markets expect a Trump loss to be a sure thing.  We shall see how this plays out.

More people died in the Nashville tornado than the coronavirus has killed in America.  Just a total joke to even be talking about the beer virus.  Godspeed to those in Nashville.

Update Morning of March 9th – And it looks like the 8,000 point decline is underway.  Hard to believe my projection of a top at 27100 was almost to the dollar.  But, oh well, I will wake it.  The Dow is down almost 2000 points at the opening.  That is what is called Wave 3 of 3 and the maximum velocity down.  Usually it means we are half way to where a bottom might form.  As I write, they just closed the markets for a 15-minute break.  This is the 1929 and 1987 Crashes all over again.

I went in to energy stocks big time this morning with oil down 25% today.  I will wait to invest more in a different industry once we start forming a bottom.  Buy on panics not at bubble tops.  Enjoy the ride folks.  Be patient.

19,100 is the early target for this 3rd Wave decline.

The Mann

Reviewer Thoughts & Tips

FRTs – Federally Related Transactions

February 25, 2020 – Most of us know which loans are classified as FRTs.  The loans that have caused confusion are those that are under the various threshold levels.  Are those FRTs or non-FRTs?  So, here is a short explanation that will hopefully be of assistance.

We start out with everything being a FRT.

Then we see if any of the 12 or 13 exemptions apply.  Here we fork in two directions.

1.  For the 9 exemptions where neither an appraisal nor an evaluation are needed (e.g. Abundance of Caution, Unsecured loans, loans sold to FNMA/Freddie et al), those transactions are outside of FIRREA entirely and thus are not FRTs.

2.  For the 3 or 4 exemptions that do not require an appraisal, but require an evaluation, these loans also are NOT FRTs.  However, federal regulations still apply as they cover what is needed in the evaluation realm.

The federal regulators only care about evaluations being done by a competent person and providing safety and soundness to banks/CUs.  The December 2010 IAEG is NOT law and, thus, although it addresses who can perform evaluations, the content of evaluations, et al, none of that matters to the bank examiners.  The only requirements in the law itself is that someone competent perform these (can be a licensed appraiser or not a licensed appraiser) and the resulting report provides what is needed for safety and soundness to be met.

So, it is left to the courts to decide debates on whether states can require that only licensed appraisers can perform evaluations.  Although federal regulators believe states have this right, they recognize that the preemption argument can be made and judges might see it that way.
It obviously would be nice if things were not left to various judges to give different rulings.  However, that is not the situation we have to live with.
The Mann 
Reviewer Thoughts & Tips

ABOVE MARKET LEASES CANNOT INCREASE REAL PROPERTY VALUE

January 17, 2020 – I addressed this issue in a June 29, 2016 post.  It is sad that almost 4 years later appraisers still do not separate the value of national tenant leases (almost always significantly above market) between Real Property Value and Intangible Value.

Recent examples I have encountered have been extreme.  A proposed c-store ground lease had the land valued at $1,000,000 (based on numerous nearby land sales) and the lease valued at $4,300,000.  Therefore, Prospective Value ‘Upon Completion’ (of the sitework) was $1,000,000 and Intangible Value was $3,300,000.  Several ground leases to fast food restaurants weren’t as extreme.  But, still the Intangible Value was over 100% of the Real Property Value.

Although I care less what the market does (See Mann’s Axiom), it is a common argument appraisers like to make when they are arguing that FF&E in Apartments aren’t separately valued by market participants (find me a Balance Sheet that does not have a Short-Lived Assets category…recent purchase contract I reviewed had FF&E separately discussed and one even placed a value on these items!) or national tenant leases sell based on the contract rent, et al.  However, I came across the following standard wording in annual reports of several REITs:

Purchase Price Allocation
When we acquire real estate, we allocate the purchase price to: (i) the tangible assets acquired and liabilities assumed, consisting primarily of land, improvements (including irrigation and drainage systems), buildings, horticulture, and long-term debt, and, if applicable, (ii) any identifiable intangible assets and liabilities, which primarily consist of the values of above- and below-market leases, in-place lease values, lease origination costs, and tenant relationships, based in each case on their fair values.

 

So, that eliminates that argument:)  In fact, the market does allocate value to above market rent to intangible assets.  Case closed on this issue.

What was surprising to me was they also allocate the amount of value due to below market rent to (I assume) liabilities.  That is interesting.

My post from 2016 is below.

Happy New Year to all.  May 2020 be a great year for you.

The Mann

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Another item I have been shouting about for almost 25 years is the appraisal of drug stores, big box retailers, and other buildings leased to national tenants.  Capitalizing these leases does NOT yield Market Value of real estate only.  I may have been the only Chief Appraiser that required that the Market Value of Real Estate not exceed the Cost Approach indication with the additional value reflected by the Income and Sales Comparison Approaches having to be identified as an Intangible Asset.  I admit that even allowing the Cost Approach indication to represent real estate value is being way too generous.  These companies usually pay way above market for the land and the cost to build the improvements is absurd – I have seen costs for these basically shell buildings be more than medical office!

FIRREA and FDICIA require that 1) Market Value be of real estate only, and 2) LTV be calculated on Market Value of real estate only.  We all know a shell retail building is not worth $300 or $400/sf as most drug stores have appraised at for 20+ years.  Excluding the inflated land purchase price and using the real value of the land, these properties are lucky to be worth $100/sf in most markets.  Yet, I am sure the vast majority of financial institutions have used the incorrectly stated Market Value provided by appraisers to calculate LTV and base their loan on.  This is similar to those institutions that used, or may still use, Going Concern Value to calculate LTV.

Can we say violation of numerous federal regulations….but I digress.

All of this leads me to two recent articles that I believe finally end this absurd debate.  I highly recommend you find the following articles:

David Charles Lennhoff, CRE, MAI, ‘Valuation of Big-Box Retail for Assessment Purposes: Right Answer to the Wrong Question,’ Real Estate Issues (Volume 39, Number 3, 2014): 21-32.

Stephen D. Roach, MAI, SRA, AI-GRS, ‘Is Excess Rent Intangible?’ The Appraisal Journal (Spring 2016): 121-131.

In my opinion, both authors prove beyond a shadow of a doubt that the excess rent present in almost all drug store, and similar leases, is not indicative of the market value of real estate.  They use both theory and real data to prove their points.  Mr. Roach sums up the logic better than I have ever seen (from page 125 of his article):

  • “By definition, the real estate (a property) can produce market rent, but no more.
  • By definition, excess rent exceeds market rent.
  • By definition, excess rent is created by the contract, not the real estate.
  • By definition, a contract is an intangible asset; it’s not real estate.
  • Therefore, excess rent is intangible.

Each step in the argument is based on long-accepted definitions and concepts of the terminology.”

I challenge all of the Chief Appraisers in the country to step up and require appraisals of these properties to appropriately indicate the Market Value of REAL ESTATE ONLY with the huge additional amount above this figure being termed Intangible Value (or something similar).  It is time both appraisers and lending institutions provide the correct value and LTV.

Plus, this will make the lives of us reviewers easier – it has been frustrating to lower the values 50%-75%+ all of these years!  Of course, we could simply order these appraisals from the two authors above and have slam dunk reviews forever:)