Tag Archives: The Mann

CRE LOAN REFINANCING – A REAL LIFE EXAMPLE

UPDATE – AUGUST 10, 2023 – I just came across some interesting information. Over the past decade, regional banks only had 18% of their loan originations backed by office properties – larger banks had 26%. They also originated a lower share in hotels, industrial, and retail properties. Regional banks had 47% of their volume in apartments compared to 29% for larger banks. The concern about regional bank loan portfolios being decimated by office building loans is obviously unfounded.

AUGUST 9, 2023 – In mid-June I posted about the so-called CRE loan debacle that lies ahead. I provided some hypothetical numbers that showed for the most part borrowers will have no problem with their refis.
I just reviewed an appraisal of an apartment property that I also reviewed 5 years ago when the borrower purchased the property. The bank was kind enough to provide me the loan details then and now. So, let’s see how the numbers work out.
2018 – A $633,000 loan was made against an $800,000 appraised value (purchase price was $840,000). The LTV was 79%. Annual Debt Service was $49,670 based on a 4.89% interest rate and 20-year amortization. The appraiser estimated NOI at $60,387. The DSCR was 1.22.
2023 – The outstanding loan balance is now $527,230. The current appraised value is $1,280,000. The new LTV is 41%(!). Annual Debt Service will be $49,814 based on a 7.20% interest rate and 20-year amortization. The appraiser estimates NOI at $97,474. The new DSCR is 1.96(!). ((I was curious what interest rate would make the Annual Debt Service result in the same 1.22 DSCR as when the original loan was made. It is 14.27%! I shout to the moon that everyone can easily afford 7%+ interest rates!!! Wake me up when we hit 14%:) ))
This will be the case with most apartment and industrial loans. Net Operating Income has increased significantly more than Annual Debt Service. Higher interest rates of 200-300bp will not be a problem for borrowers.
As I noted in my June post, office and retail property loans probably will run into issues. I also think the above is more applicable to income-producing property loans than owner-occupied property loans.
As I write this, regional bank stocks are up 38% from their lows a few months ago. The market is telling us it has no concerns about CRE loans. I believe the market over the economists and pundits that are a broken record about CRE loan and a recession.
Shalom,
The Mann
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Addenda – In the real-world example above, I kept the refinancing at the current outstanding balance. The borrower is actually getting new monies and refinancing $800,000. The Annual Debt Service will be $75,586. The resulting LTV is 63% and DSCR is 1.29. Even with a significant increase in the loan amount, the loan ratios are in safe territory.
I continue to say both commercial and residential borrowers can easily afford 7%+ interest rate loans.

THE REMAINDER OF 2023 – BANKS & HOUSING

JULY 30, 2023 – This is my 3rd and last post regarding my forecasts for the remainder of 2023. Today’s topics are banks and housing.
BANKS – I have been saying since the SVB/SBNY closings that week after week goes by without any closures. Finally(!), last week we had a bank in Kansas get closed down by the FDIC. Also, PacWest was acquired. At this point, we remain closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people.
As for CRE loan defaults, I have dealt with an office building (100% leased – it appears the borrower went bankrupt for some other reason) and two churches (same loan). We shall see if this picks up.
The Regional Bank Index (KRE) continues to soar and is about 20% above the low set the Monday after the SVB/SBNY closings. It is a full 40%+ (!) above its most recent low. Please let all of them people that told you that banks were going down the tubes what you think of their opinions! They have cost the masses a 20%-40%+ return – in less than 4 months at that!!!
As an aside, the market is saying that it does not believe there will be a CRE loan debacle for banks. Either not many CRE loans will default and/or banks are well prepared and capitalized to handle the defaults.
HOUSING – Let me just present a bunch of stats that clearly shows the strength of the housing market. New home sales increased 28.4% from July 2022 to June 2023. According to the Case-Shiller Index, home prices are within 1% of their June 2022 peak. Redfin reports home prices are up 2.1% from a year ago. The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 0.7% month-over-month in June. It has been up every month this year. Annual appreciation is at 2.9% and projected to increase to 6%-7% by yearend. The Homebuilders Stock Index is up an incredible 60% (!)from last year’s lows. Those who forecast a crash in the housing market continue to be way off the mark.
SUMMARY – With both bank and housing stocks at their highs, the markets are saying both industries will do very well through year end and into early next year. There is no sign yet of a slowdown occurring for either industry. Sadly, all of those economists, market forecasters, and pundits have kept the public from making 20%-60%+ returns in these industries. But, that has been the norm since the world’s largest casino came into existence.
To sum up up the 3 posts:
Inflation will be stubborn and rise slightly over the remainder of the year – probably stay in the 3.5%-4.0% range.
The economy has a near zero chance of going into a recession. Yes, GDP will slow down from the amazing 2.2% rate that occurred in the first half of the year. I will put this hidden little sentence out there to refer back to in 12-18 months – The chance of a recession occurring looks to be 4th Quarter 2024 into 2025. I suspect that a year from now the broken-clock recession mongers will have given up and admitted the economy is strong, et al. Just in time to be wrong again:)
And, per above, banks and housing should be rock solid into the 1st Quarter of 2024.
I will provide updates per usual. But, will revisit the 6-month forecasts (for 1st and 2nd Quarter 2024) around the Holidays. Yes folks, less than 5 months til Christmas:)
Shalom,
The Mann

THE REMAINDER OF 2023 – ECONOMY

UPDATE JULY 27, 2023 – 2nd Quarter came in at a whopping +2.4%. Far exceeding expectations that were below +1.5%. So, we have an economy that has expanded, not contracted, this year! The stock market told us this would happen. For anyone you know that has been predicting a recession in 2023, please ask them if they admit they have been totally wrong. People need to admit their errors and stop being broken clocks. If they don’t, they have no credibility. As I note in my original post below, it is likely the current forecast of +0.5% and 0.0% for the remaining two quarters will change to the upside as the year carries on. Will the economy slowdown from +2.0%-2.4%? Yes. The stock market has said it will be stagnant the remainder of the year. But, will we see two negative figures in a row? The odds are near zero. Plan accordingly.

JULY 22, 2023 – It is all but guaranteed that the recession mongers will be wrong about such occurring in 2023. As I forecast earlier in the year, by Summer (i.e. now) those people would begin to move their prediction to a recession occurring in 2024. Enough time wasted on the large group of media and economists that are broken records.
So, what does the future hold. The past 12 months have been very easy to predict for the economy, housing, and inflation. IF you just read what the stock market (i.e. Dow 30) is telling us. Yes, it is that simple. And, yet, 99%+ of the public and pundits don’t do it.
The Dow 30 peaked in December 2022 after bottoming in October 2022. That told us to expect weakness thru April 2023. Sure enough, the Silicon Valley Bank collapse and the associated bank panic occurred in March and April.
Since December 2022, the stock market trended sideways for 8 months. Just this past week the Dow finally broke thru the 35,000 level after about 7(!) failed attempts. So, what does this tell us? It tells us that the economy is expected to be stagnant for the last 6 months of this year. And, based on this upside breakout, the economy should see an uptick in the 1st Quarter of 2024. This is a very early interpretation as the breakout just occurred this week and is only a small amount above the December 2022 high.
Is the stock market, and thus smart money, correct? Yes. As usual. 1st Quarter GDP was +2.0% (revised from the initial report of 1.3%). 2nd Quarter GDP is project to be +1.3%-1.4%. But, 3rd and 4th Quarter GDP are expected to be barely in positive territory. Exactly what the stock market has told us would be the case for the past 8 months – a stagnant Dow 30 forecasts a stagnant economy 6 months out.
Forecasts obviously vary. I have seen most to be around +0.5% for the 3rd Quarter and 0% for the 4th Quarter. But, I think those forecasts are trending up due to the strengthening housing market (that will be my next post, so please come back:) ).
The recession mongers will be screaming they told us the economy was caving. One, they have been calling for a recession for over a year (right after the actual recession just ended!) and GDP has come nowhere two negative quarterly figures in a row. Two, the stock market has forecast the ups and downs with 100% accuracy. It hasn’t been a broken record.
Based on my forecast that the CPI will trend up the remainder of the year, I suspect the market will tell the Fed to raise the Fed Funds Rate several more times. Note, the public is wrong to blame Powell for raising rates. He is simply doing what the Fed has done forever – following exactly what the market has told it to do. So, the market has obviously priced in all Fed actions ahead of the Fed meetings because the market told them what to do at the meetings!!!
But, I digress…..my point is the recession mongers will remain a broken record as they will continue to say that the Fed’s raising of interest rates is going to push us into a recession. As of today, the stock market says they are wrong and a recession is not going to happen. I put my money on the stock market instead of all of those economists that have been 100% wrong for the past year (and longer).
I believe my forecast of the housing market will be my next post. I will probably combine it with a brief discussion on banks.
Shalom,
The Mann

THE REMAINDER OF 2023 – INFLATION

JULY 19, 2023 – Looking back at my posts, 9 months ago with inflation above 8% we had a large contingent of economists predicting inflation would soar above 10% in 2023. You couldn’t be much more wrong than they were.
By January, I came out with my 6-months out forecast that the CPI would fall below 2% by the July 12th report that just occurred. As we went thru the Spring I admitted that was too aggressive and 3% was the likely figure. And 3.0% is where we ended up.
So, what am I seeing for the remainder of the year. Straight to the point – I think the current 3.0% figure is the low we will see for this year. I expect the August report will be 3.4%-3.5%. I see virtually no chance of inflation falling below 3.0% anytime by yearend. My prediction for the January 2024 report that will show what CPI was for the entire year of 2023 is in the 4.0%-4.5% range. It is WAY early, but there is a good chance we will see CPI go below 2% in the Spring of 2024. That will make Powell happy:)
I will say if there is any surprise to the above, it will be to the downside. Several indicators are forecasting disinflation, and even deflation, and thus a chance to see inflation drop. PPI is down to almost 0% and it leads CPI. Wage inflation is slowing. But it still above 4%. The significant factors of energy and transportation are down double-digit rates (!) year-over-year. Also, China is weaker than expected and their weakness gets reflected in our prices a quarter or two out. I hear those forecasting below 2% CPI by yearend. The data just seems impossible to me to have a decline below 3% occur.
As always, we shall see.
This is the first of several posts as I forecast the remainder of the year and into 2024. Banks, the economy, and housing are to follow.
Shalom,
The Mann

CAN PEOPLE AFFORD 7% MORTGAGE RATES?

JUNE 15, 2023 – YES! The simple answer is, of course!
I saw a survey this week where people said they needed mortgage rates to drop to about 4% for them to afford a new house. As my friend The Red-Shoe Economist, KC Conway, would say ‘I call BBQ-Sauce!’
People can afford a 7% mortgage rate. They can afford a 10% mortgage rate! Us old-timers remember when a rate below 10% was a bargain.
People buy a mortgage payment. They do not buy a home price. Everyone knows that. So, all people have to do is adjust the price downward (and the mortgage amount is obviously based on the purchase price…for simplicity, I will assume a 100% LTV since people do not put much money down).
Let’s say someone can afford a $2,000/month PITI (for now, assume no escrow). At a 4%, 30-year mortgage, they could buy a $418,922 house. Technically, a higher price if the LTV was less than 100%.
At a 7% mortgage rate, the $2,000/month PITI can buy a $300,615 house. The point is they can still afford a house at a higher interest rate. They just have to adjust the price category they look at. They do the same thing when interest rates go down – they look at houses pricier than they really need. Well, adjust in the other direction when rates go up! Life is so simple.
Also, one major benefit to the above that gets overlooked is it is alot easier to save for a down payment on a $300k house than a $420k house! People have a much easier time of getting into a new house when they adjust their price target downward.
Combine the above with a low inventory and you probably have an explanation for home prices rising every month this year. Demand remains strong. People can afford houses at the new interest rate level.
Lastly, I find the argument that the public cannot afford a house payment at 7% interest weak when they can afford to run up their credit card debt at 18.99%-26.99%+ interest rates!!!!!! Another way to more easily afford a mortgage payment at current rates is to not have credit card debt! Adjust your way of living. It’s that simple.
By this time next year when the world realizes the day of artificially low interest rates is history and will not return, they will simply adjust to living with 7%-8%+ mortgage rates and supply and demand analyses will work the same as they did before. People adjust. They always have. It’s just easier to complain before facing reality and adjusting the way they do things. Human nature.
Shalom,
The Mann

INFLATION FORECAST, BANKS & HOUSING

MAY 11, 2023 – As forecast, inflation didn’t change much last month. But, did fall below 5.0%. Significant declines will occur over the next two months.
The 3-month annualized inflation rate is high at 5.7%. The 6-month annualized inflation rate is 3.6%. These figures bracket the annualized rate (4.9%) and thus indicate the decline in the annual CPI should slow down after the next two months are in.
Based on the data, my prediction for next month’s figure is 4.1%-4.3%. I like the data and am confident the next reading will be in that range.
As for the July 12th forecast, the data now suggests a figure around 3.2%-3.4%. The odds for a figure around 2% are about nil, unless we have full blown deflation show up. Doubtful, but there are signs we may get surprise negative readings in the coming months. I will need to see it to believe it. After bottoming with the July 12th figure, it looks like inflation will rebound in the second half of the year to the 5%-6% range. That said, we will be far below the double-digit rates many people have been forecasting for the past year. However, this will make the Fed consider more rate increases. Something, the market is not pricing in at this time.
A bit of trivia. The annual CPI rate has decreased for 10 straight months. I am certain that streak will extend to 12 months. The only times such a streak occurred was in 1921 and 2012. Neither were around a recession or stock market crash.
BANKS – Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. Pac West seems to be the bank on the hot seat right now. It is one of the ten banks I listed a few months ago.
The Regional Bank Index (KRE) broke down last week and is about 10%-15% below the low set the Monday after the SVB/SBNY closings. This is saying the market expects to see CRE loan losses (I am going to post about this soon) increase the remainder of the year. No surprise in that forecast.
HOUSING – The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 1.4% month-over-month in March. I believe it has been up every month this year. NAR reported that home prices increased in 70% of metro areas in the First Quarter of 2023. The Homebuilders Stock Index is up a full 40% from last year’s lows. Those who forecast a crash in the housing market appear to be way off. As I forecast about a year ago, the housing market would slow way down and possibly go slightly negative (that has occurred in the hottest markets). A year later I am seeing a slightly improving market ahead.
Til next month.
Shalom,
The Mann

GDP & BANKS UPDATE

APRIL 29, 2023 – 1st Quarter came in at +1.1%. It continues to slow. But, another positive quarter. Early forecasts show 2nd Quarter GDP being slightly positive. However, with ample time for adjustments, there is a chance it could end up being negative.
Quick note, I received an email from the Fed last week showing it was expecting 1st Quarter GDP to be +1.13%. They appear to be the only one to get the forecast right. Of course, they have access to all of the data that goes into the GDP.
Regardless, it will be around Halloween before a recession can be in the books. And if the 2nd Quarter GDP does end up being positive, a recession cannot be official until late January 2024.
So far, the stock market says a recession will not occur this year. We shall see who is right – the stock market and the smart money or everyone else that is all but guaranteeing a recession will occur in 2023.
Will the Leading Economic Indicator that has declined for 10+ months and has been signaling a recession for many months be right?
Will the fact that bank credit tightening leads to a recession be right?
There are numerous other indicators signaling a recession will occur this year. The only problem they have is they are not the stock market.
My bet is, and always has been, on the stock market being correct. As always, we shall see.
BANKS – Still no new bank failures. First Republic Bank was part of this original crisis that occurred with the SVB and SNBY and Credit Suisse failures. The only other bank that is walking on thin ice is Deutsche Bank. Beyond this initial list, no banks have failed. The count remains 0 versus the 176-200 predicted by many people. (UPDATE – In 1907, JP Morgan the person came to the rescue of the banking system and in 2023 the company with his name did the same.))
The Regional Bank Index remains about 2% above the low set during the SVB/SBNY crisis with the drawdown to date being 3%. Money is not being made on these stocks. But, they sure have not fallen apart. Friday was a classic day that fools the public. The headline news was First Republic Bank heading towards failure. Instead of being down, both the Regional Bank Index and the Dow were up. The Dow is now above 34,000 again. Remember, a Bull Market climbs a wall of worry. The more negative news we have this year, the higher stocks should go. And it looks like all we will hear from the pundits is negative news. When the news turns positive, the stock market will have already topped.
Happy trading and investing.
Shalom,
The Mann

HOUSING AND AN ITEM OF TRIVIA

APRIL 19, 2023 – Let’s get the trivia out of the way. India has surpassed China in population. I didn’t know it was even close. Sort of reminds me of the day about 30 years ago when WalMart surpassed Sears and KMart (you youngsters are asking what is Sears and KMart 🙂 ) on the same day to become the #1 retailer. As for the housing market…
Freddie Mac said the 30-year mortgage rate declined for the 5th straight week – now at 6.27%. It is like pulling teeth to get it below 6%. But, regardless, it has been lower ever since the day I called the high last year.
According to the American Enterprise Institute (AEI), home prices increased for the 3rd straight month. This follows monthly declines from July to December 2022. As I have noted many times, the market predicts the future 6 months out. As an aside, I heard an analyst today say the market does not predict the future. It is people like him that I need so I can have someone on the other side of my trades:)
So, in regard to housing, the market peaked in December 2021. Thus, it said the housing market should peak in June 2022. If you read my posts last June, you will see I was screaming that a top was occurring by the very minute.
After a 40% decline, the same indicator bottomed in June 2022. Thus, predicting a bottom for housing in December 2022. Is it coincidence that the AEI home price index bottomed in December and has gone up for 3 straight months? Sure, let’s call it coincidence:) As an aside, the same indicator is up 35% from its low.
This is a great lesson on how the market takes advantage of the public. At the end of 2021, the smart money cashed out and enjoyed a 40% decline in housing stock prices. All along, the public was hearing every day how strong the housing market was. Then, for the 2nd half of last year while the public was hearing how the housing market was crumbling due to rising interest rates, the smart money made 35% on housing stocks rising. It is such an easy game to play. As long as the public always follows the news…and it will.
So, remember, this Fall the news will change from being negative on housing to being positive. Suddenly, the public will have found a way to sell their houses that had a 4% mortgage rate and buy a house at a 7% mortgage rate. Remember, the market predicted that news today – 6 months before you hear it from the pundits. Also, this is not the first time in history that people owned homes with mortgages at x% and years later had to sell and buy a home at a mortgage rate of X+3%. People adjust. Just buy a lower price home! Everyone acts like this is the end of the world having mortgage rates 3% higher. It isn’t. The sun continues to come up in the East every day.
As I mentioned last year, the decline in housing prices would be less than expected because of a lack of inventory. According to Redfin, the number of listings has declined at a double-digit rate for 8 straight months! Geez, are there any homes for sale anywhere! According to the NAHB, 1/3 of homes for sale are new construction. The norm is 10%. Do you think the market knew that would be the case when they started buying housing stocks last June? Yes, of course.
I said last year the public and pundits would be baffled by home prices not declining much, if at all, while the average mortgage payment was up 50%. Logically, home prices need to decline 33% to keep the mortgage payment the same. That has not and will not happen.
All of the above is explained by Socionomics (not the same as socioeconomics). Thankfully, I started following Robert Prechter 43 years ago and watched him develop the Theory of Socionomics. No matter how much is published on the subject, the public just will never learn to do the opposite of what they have been doing for thousands of years. I am sure you can find Mr. Prechter’s books on the subject on Amazon, eBay, etc. If you want to change the way you look at everything, look into this subject.
Lastly, I want to mention an interesting conflict in indicators that will play out this year with one side or the other being wrong. The stock market bottomed last October (so 6 months later is right now and I saw a survey that said the public is the most pessimistic about the future that they have ever been….of course, if you follow the stock market you knew that would be the case 6 months in advance!). It is up about 20% from its lows. It continues to say no recession this year and, in fact, the economy should improve. Now, the opposite is occurring with the tightening credit market. Virtually ever recession has been preceded by banks tightening credit. This indicator is screaming for a 100% certain recession in the second half of this year. So, either the smart money is wrong or this indicator will fail this time. Something has to give. I bet on socionomics and the smart money (aka stock market). Which side are you betting on?
Til next time…
Shalom,
The Mann

INFLATION FORECAST AND BANK UPDATE

APRIL 14, 2023 – As I said a month ago, I thought the data was forecasting a higher rate than we would see. Sure enough, annual inflation fell significantly to 5.0%. Just under my forecast of 5.1%-5.3%.
The 3-month annualized inflation rate is a very high 6.9%. The 6-month annualized inflation rate is 3.4%. These figures bracket the annualized rate (5.0%) and thus indicate the decline in the annual CPI should slow down.
Based on the data, my prediction for next month’s figure is 5.0%-5.1%. My gut tells me this will be the ceiling with a rate as low as 4.6% possible.
The June and July readings will reflect significant declines in the annual CPI. As for the July 12th forecast, the data now suggests a ceiling around 3%. The odds for a figure around 2% have become very small. It is looking like we might have 3%-4% inflation for the second half of the year. It will take a recession combined with deflation to achieve the Fed’s goal of sub-2% inflation. That said, 3%-4% is far below the double-digit rates many people have been forecasting for the past year.
Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. CRE loan losses are on their way. But, I just don’t see many banks failing because of such. Simply due to increased capital from 15 years ago and the Fed shoring up their unrealized treasury bond losses.

The Regional Bank Index (KRE) remains about 3%-5% above the low set the Monday after the SVB/SBNY closings. The maximum drawdown since then was about 1.5%. Not much movement in general. But, the market certainly hasn’t thrown in the towel on these banks.
Lastly, the market is telling the Fed to raise rates another 25bp and then later this year lower them twice.
Shalom,
The Mann

AN EVERYTHING UPDATE :)

UPDATE – MARCH 23, 2023 – A few items to update regarding the post below and other recent posts. I had heard that 1/3 of bank deposits are uninsured. I just saw a chart from the FDIC that says about 1/2, or about $9 Trillion (!), in deposits are uninsured. No banking system could withstand even 20% of that amount being withdrawn. Money continues to leave banks as consumers can get 4%+ in money market funds and T-Bills versus 0.5% in banks. With the inverted yield curve, banks are unable to pay 4%-5% on deposits in line with the Fed Fund Rates.

Here is a list of banks with the most unrealized losses in relation to their total equity capital. Remember, the Fed is letting banks get funding on their underwater bonds at full par value. So, this doesn’t necessarily mean a run on deposits at these banks will make them go under. But, they are on thin ice. Customers Bancorp, Inc., First Republic Bank (been in the news for a week), Sany Spring Bancorp, Inc., New York Community Bancorp, Inc., First Foundation, Inc., Ally Financial, Inc. (by far the worst ratio….and like CACC, in the auto loan business), Dime Community Bancshares Inc., Pacific Premier Bancorp Inc., Prosperity Bancshares Inc., and Columbia Financial, Inc. The late-SVB was in this group, too.

The more I understand what the Fed has done, it appears this is what I would call IQE1 – Indirect Quantitative Easing 1. Leave it to us Baby Boomers and our invention of creative financing to now come up with an Indirect QE:) Gotta love us:) In the end, it will probably be referred to as QE4. See my next post as to a term you will want to watch for to know when the Fed has gone all in on the real QE4.

As an aside, the Regional Bank ETF hit a new low by a few pennies today. The market is still sorting out which banks to sell and which to buy.

Also, I mention in the original post below that the market is telling the Fed to lower rates 150bps in 2024. I heard today that has been moved up and the market wants the Fed to pivot in 3-4 months and start lowering rates. No pressure on Powell, eh!

MARCH 21, 2023 – As the 1st Quarter comes to an end, this seems like a good time to update my thoughts on forecasts on many items. So, here goes. No particular order.
BANKS – As this has been the hot topic for the last 10 days. It seems like everyone is predicting hundreds of bank failures to come. The Texas Ratio shows 200 banks at risk. Folks we have entered QE4. I think the last QE was QE3. Correct me if I am wrong. If Vegas gave me good odds, I would bet no more American banks would fail this year. Yes, you heard me right. As there might be some small banks that are in marginal shape, I am thinking a better bet is less than 5 or so banks will fail. I am thinking total assets of banks that might fail will be under $50 Billion. Maybe much lower. There are 10 banks with relatively high CRE ratios. But, their reserves are likely high enough to handle upcoming CRE losses. And the Fed thru QE4 already shored up the weakness in their Balance Sheets. I learned from QE1 thru QE3 that the Fed isn’t going to allow our markets to suffer for too long. As the saying goes, buy when there is blood in the streets. That occurred on Monday March 13th. The S&P Regional Bank ETF I mentioned bottomed that day at 41.92. It has been higher since and closed today at 46.07. Up 10%. No, you wouldn’t have bought at the bottom tick. But, you probably would have bought very close to it as it was such an obvious moment in time. I have been wrong before. But, I can see that panic bottom not being violated and the ETF continuing higher this year. The entire world is anti-regional banks. That is when you should be pro-regional banks.
INFLATION – Geez this will get extremely long if I write as much as I did about banks:) I still see a July 12th annual reading of 3% or lower. 2% is still likely. I will throw out something you likely have not heard from anyone. There is a slim chance of a NEGATIVE inflation (aka deflation) reading at yearend or, more likely, in 2024. That isn’t a prediction I would lay too much money on. But, if you gave me the same odds that FDU had of beating Purdue in The Big Dance, I would put some money down.

FED FUNDS RATE – Everyone is asking this week what will the Fed do at the upcoming meeting. It is truly a 50/50 chance they will not make a change or raise the rate 25bp. In the end, there is minimal difference. The difference is more psychological. My guess is they make no change and defer such to April. The market was telling them they had 50bp more to go. Now it is 25bp. Let’s wait a month and see what the market says after things have calmed down. A surprising item I saw was the market is telling the Fed to DROP rates 150bp in 2024. Although the market forecast last year’s rate increases early in the year, I think it is a bit early to put much weight into the 2024 message. Also, remember, the average time between the first rate decrease and the last rate increase is 4.5 months. Since, we will likely have the last increase in March-May, it would be difficult to have a decrease by yearend. Again, give me FDU odds, and I would take a chance on a decrease in November or December.

THE BIG SHORT 2 – As I posted last August, this cycle’s ‘big short’ was auto loans. As of Yearend 2022, $20 Billion of Generation Z and Millennials auto loans are over 90 days past due. They need to watch a classic cult movie of the early 1980’s – Repo Man. They can probably stream it:) Digressing, my uncle was a repo man. I went out one night in Fort Lauderdale with him getting cars. Scariest night of my life. Back to now….Also, for 20% of Generation Z, over 20% of their after-tax income goes to a car payment!!!! Insanity. Of course, I am sure it is like their college loans and a gun was put to their head and they were forced to take on this debt;) SCOTUS will be listening to a case in 2024 about Biden wanting to forgive auto loan debt. Have some ethics. Have some morals. Pay your debt even if it takes the rest of your life!!! The one stock I mentioned was Credit Acceptance Corporation (CACC). Its all-time high was 703.27. Its bottom to date was at the beginning of year at 358.00. That is a 49% decline. At today’s close of 415, it is down 41%. That is far in excess of the DOW being down 12% from its all-time high. Not a bad call for those who actually played The Big Short 2.

BITCOIN – There is a current setup that is similar to two times in the past that took Bitcoin up over 60x and then over 20x. As assets soar in price, it becomes more difficult to have the same huge percentage increases. So, if this setup plays out, then maybe a 5x-10x move over the next 1-3 years is possible. From the recent major low around $16,000, that would be $80,000-$160,000. This will take some time to play out.

STOCKS & BONDS – It seems like everyone is looking for a recession this year. Everyone is expecting the stock market to fall apart. As I have posted on here many times, 2022 was the recession. In 2022, the global loss for stocks and bonds was about $36.5 Trillion (!!!). In comparison, the maximum loss in 2008 was about $23.5 Trillion and in 2020 was about $24.0 Trillion. What more do people want? A CRASH 50% larger than what occurred in 2008 isn’t enough? Since I seem to be in the mood to put out crazy forecasts, let’s not stop here. By yearend, I can see the DOW above 38,000 and the S&P 500 in the 4800-4900 range. 40k in ’24 has a nice ring to it. I would be interested if you see anyone else forecasting the DOW above 38k or S&P 500 above 4800. Those who know me know I have been a bear my entire life. I have always lived for downturns. For me to be this bullish, is beyond amazing to even me. A question I always want to ask analysts is what would it take for you to say your forecast is wrong. In this case, that would be the DOW breaking below last October’s lows at 28,660. If that occurs, the above is out the door.

OIL – I honestly haven’t looked at a chart since I sold all my oil and gas (aka pro-plant stocks) holdings the day oil hit $137 per barrel. This was about a week into the Russia/Ukraine dustup. The opposite of buy when there is blood in the streets is sell when everyone wants to buy something. That was the day of the high and oil has recently traded as low as $70. Almost a 50% decline. Do you remember a year ago when everyone said we were in for a major shortage of oil and prices would go even higher? What are those people saying now? This is the first time in my life I have not owned oil and gas stocks. It is getting tempting after a 50% decline. I may check into the charts and see what is up. If I do, I will post my thoughts here. In the interim, please boycott EVs and buy only gas vehicles and devices and help the plants around the world flourish and feed its 8 billion people. I always tell people that whether it is bonds or corn or cattle or oil it is us futures traders that dictate what the price is and what consumers will pay. It is not supply and demand. It is not government actions. Commodity traders are the ones in control.

HOUSING – I am exhausted writing the above. I will cover housing in the near future. There are mixed signals. But, in general, I am feeling my expectation of unexpected market strength is playing out perfectly. NAR’s price index just declined on a year-over-year basis for the first time since 2012. However, AEI’s HPA saw a recent monthly increase. Also, Pending Home Sales are up 9.3% in the two months thru January. That is the dead of winter and home sales are up almost double digits. Remember, a year ago, the housing market was super strong. So, this isn’t working off of low numbers. Looking at a chart since 2001, when Pending Home Sales turn up they don’t usually turn back down. My prediction re mortgage rates has come very close to occurring. We have not been below 6% yet. This decline is getting long in the tooth and I am watching the charts to see when the bottom is in place and we turn back up. Although the rates have been down ever since I predicted such, it is looking like a move below 6% might not happen. Still a chance though.

You’re tired. I am tired. I hope you find the above of interest. Even eye-opening. Forecasts obviously do not come true 100% of the time. Keep that in mind. I certainly do:) I am disappointed with even a single incorrect forecast. I give it my best to be right as much as possible and to admit when I am wrong. I rarely see the pundits come out and say I was dead wrong. They should be forced to do such.

Always glad to hear from you. Please email me with any thoughts you have. Any charts or data you see that I might be interested in. I am at GeorgeRMann@Aol.Com.

Shalom,

The Mann