The housing market is in trouble
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Before we jump in, my 2022 has officially been made:
SIX things you need to know this week in <5 minutes:
The housing market is in trouble
IPOs have been KO’d
Wells Fargo hit with record fine
Turnaround year for farmers
SBF has zero friends
Twitter needs a CEO
1. MACROThe housing market is in trouble
High cost of labor, construction materials, and low buyer demand has pushed homebuilder sentiment down every month this year to its lowest level in more than a decade (outside the pandemic).
Housing starts and building permits fell 0.5% and 11.2% in November, respectively. The former is at its lowest since May 2020 while the latter hit levels not seen since June 2020.
Weak homebuilder data was followed by a larger-than-expected drop in existing home sales (the 10th straight month), which fell by 7.7% in November despite 5 consecutive weeks of declining mortgage rates.
Meanwhile, the median sales price for existing homes crept up 3.5% from a year ago and has now increased YoY for 129 straight months—the longest streak on record.
GRIT'S TAKE: With inventories still historically low and homebuilders under pressure, the housing market remains highly supply-constrained.
GRIT'S ACTION: Don't miss this Sunday's newsletter where we take a deep dive into the housing market!
2. DEALSIPOs have been KO’d
After a record-breaking 2021, the IPO market has had a year to forget.
In fact, global IPO volumes have dropped a heavy 45% YoY while the US market is on pace to raise the least amount of money in at least 20 years.
Of some 600 companies that went public in the US through traditional listings in 2020 and 2021, approximately one in four are currently trading below $2 per share.
To avoid delisting—which becomes a risk if shares spend more than 180 days under $1—companies are scrambling to cut costs, raise money through structured private financing rounds, considering reverse stock splits, and/or seeking buyers in a dried-up market.
GRIT'S TAKE: Companies kicking around the idea of an IPO are likely to put those plans off until the market stabilizes.
GRIT'S ACTION: No interest in IPOs/SPACs.
3. STOCK MARKETWells Fargo hit with record fine
Wells Fargo simply can't-stop-won't-stop hurting its customers.
According to the Consumer Financial Protection Bureau, the bank allegedly harmed some 16 million people after hitting them with unlawful vehicle repossessions and overdraft fees, even though customers had sufficient funds in their accounts.
This week, Wells Fargo reached a settlement after the agency dished out its largest fine ever at $1.7 billion. In addition to the penalty, the bank will be forced to fork up another $2 billion in consumer restitution.
The bank reported this week that it expects a $3.5 billion operating losses expense this quarter.
GRIT'S TAKE: That's $6.7 billion in penalties for consumer abuses and fraud since 2020 for Wells Fargo.
GRIT'S ACTION: Not banking with Wells Fargo.
4. COMMODITIES Turnaround year for farmers
Farmers, ranchers, and related companies are enjoying a sharp reversal from what until recently had been a decade-long agricultural recession.
Thanks to rising prices from crops and animal products, US net farm income is expected to jump to $160.5 billion in 2022—the highest level since 1973.
Famers are expected to watch their earnings climb by $20 billion (~14%) from 2021 as cash receipts for crops and animal products are projected to increase 19% and 31%, respectively.
Also benefiting from the agricultural industry's bounce back are US cropland values, which rose 14% in 2022 to a record $5,050 per acre.
GRIT'S TAKE: With inventories still low, below-trend yields, and rising crop prices, 2023 is setting up nicely for farmers, so long as they can navigate higher costs for fertilizer, pesticides, and machinery.
GRIT'S ACTION: Check out our deep dive into farmland investing on GritALTS!
5. CRYPTOSBF has zero friends
Sam Bankman-Fried (SBF) joined the mile-high club this week and he didn't even know it.
On Wednesday—while he was mid-flight to New York from the Bahamas—it was reported that his ex, former Alameda CEO Caroline Ellison, managed to screw him one last time by pleading guilty to federal fraud charges, effectively throwing him under the bus.
Both Ellison and FTX co-founder Gary Wang (who similarly caved) are now cooperating with authorities (read: trying to avoid 160 years of combined jail time).
Meanwhile, SBF has agreed to a bail package that includes home detention at his parents', location monitoring, passport surrender, and the largest-ever pre-trial bond at $250 million! He faces up to 115 years in prison.
GRIT'S TAKE: Straight to the cell, throw away the key.
GRIT'S ACTION: Educating myself on self-custody.
6. ENTERTAINMENTTwitter needs a CEO
There's never a dull moment on Twitter and this week was no different.
On Sunday evening, after a week of journalist censoring and controversial content policies (i.e., banning posts promoting other social media platforms), Elon Musk put his tenure as CEO of Twitter in the hands of a public poll, the results of which he promised to abide by.
After more than 57% of the 17.5 million votes were cast in favor of his stepping down, Musk deflected by saying Twitter would be changing the polling feature so that only Blue Verified subscribers could participate.
To his credit, he did eventually confirm he would make good on his resignation promise, though that hinges on him locating someone crazy enough to want the position.
GRIT'S TAKE: Anybody who actively wants this job is out of their mind.
GRIT'S ACTION: Elon and I are basically best friends now.
*SOURCES
1. Bloomberg, CNBC, Twitter
2. WSJ, PRNewswire, EY
3. CNBC
4. WSJ
5. Zero Hedge
6. NYT
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