Homebuying For Dummies (2023) | The Daily Peel | 2/7/23

Feb 7, 2023 | Peel #394

 

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Market Snapshot

Happy Tuesday, apes.

Much like Sunday night’s Grammy awards, yesterday’s market action was pretty underwhelming. Coming off the back of the biggest week of data in a long time, Monday got us off to a rocky start with risk assets continuing to slide, driven again by Friday’s way-too-good jobs report.

US stocks broadly fell with the Dow and defensive names holding up better than others. Meanwhile, yields continued to surge higher while the dollar followed suit, along with the VIX joining the party, too.

Let’s get into it.


Banana Bits

  • An absolute nightmare has struck the people of Syria and Turkey as record-setting earthquakes struck the region late Sunday and early Monday
  • Every “Oak Street” in America has a CVS on it, but CVS may soon have its very own Oak Street in it if this deal closes
  • Someone make this into a reality show or live-action remake or something. McCarthy and Biden are gonna be beefing about the debt ceiling for a while
  • No one has cared about the Grammy in a long time, but this year, fewer people didn’t care than in the past few years

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Macro Monkey Says

How’s Your Housing?

Here’s a nice “Would You Rather” to use with your friends: Would you rather be stranded alone on a desert island with absolutely nothing for the rest of your life, or would you rather be a first-time homebuyer in the United States in 2023?

It’s a tough one, I know, and the thing is those two scenarios aren’t that different from each other. The only difference is that in the first scenario, at least you don’t have your parents, kids, friends, or all of the above pressuring you to fix your situation.

Buying a home in the US right now is right around the least amount of fun that it’s ever been. In 2021, housing and housing-related activities accounted for ~16.7% of the US GDP, meaning right around $1 out of every $6 spent in the US that year was related to our homes. Spoiler alert: that will almost definitely not be the case in 2023.

Take a quick peek at today’s Data Peel. See what I mean? Maybe not, as it took me a solid 20 minutes of research to learn WTF that chart was even trying to say. Apparently, the black line going down means the affordability of housing is falling. And as you can see, it’s doing a whole lot more than just falling lately.

That other sh*t you see on the chart essentially summarizes the biggest factors impacting home affordability: price, rates, and income. While income has gained significantly during the pandemic, particularly on the lower levels, it has not been able to keep up with the explosion (implosions?) in one’s ability to buy a home.

It all started when home prices soared 40% in little more than 2 years following C-19 washing up on our shores. This brought rates back down to zero while the velocity of home sales skyrocketed as everyone, everywhere, moved somewhere better to WFH. Naturally, falling rates and sky-high demand led to an explosion in prices.

Now, rates have mooned like $GME in early 2021 while income growth is slowing alongside demand to move into a new home. What does this mean? Well, we’re glad you asked.

This means that the housing market is following in the footsteps of a hyper-popular Disney movie and becoming Frozen. Although falling, recent changes in home prices haven’t fallen nearly enough to meet the demand of the next marginal buyer for the most part. This is largely due to the following:

  • Less supply as builders have slowed home building and permitting in both long- and short-term trends
  • Mortgage handcuffs, as no one wants to trade a 3% rate for a 6.5% rate
  • Recession worries don’t exactly inspire shoveling an a**load of debt onto your plate in the form of a new mortgage (especially at 6.5%)

American home builders effectively have PTSD from 2008. They’re terrified of building to meet outsize demand, as the last time that happened, well, let’s just say Michael Burry made a lot of money (and a movie).

Moreover, many homeowners didn’t mind selling and taking on a new mortgage in recent years because they could do so at roughly the same mortgage rate as their existing place. Now, with average 30-year fixed rates sitting around 6.46%, it’s not exactly easy to convince someone who bought during ZIRP or C-19 to relinquish their 2.5% rate for something almost 3x that.

Usually, the concern is the marginal buyer. As the chart below and info above suggest, right now, there isn’t even a marginal seller, let alone someone to buy the thing. Buyers don’t wanna pay absurd prices, sellers don’t wanna take a loss on their goddamn house, and JPow wants us all to suffer the pain of high rates. Place your bets now!


What's Ripe

Bed, Bath, and Beyond ($BBBY) ↑ 92.13% ↑

  • Damnit, not this dogsh*t again…Okay, fine, we’ll talk about it.
  • One of the least financially-healthy companies in America nearly doubled its share price yesterday as the firm decided it’s not gonna quit just yet. Heading for bankruptcy, the sad, depressing retailer has announced plans to raise $1bn through a share issuance program.
  • This is not a good thing. Issuing more shares = dilution for existing holders, but retail traders still inexplicably poured in. I guess, on the bright side, at least they’ve delayed bankruptcy for the time being. Good luck!

Catalent ($CTLT) ↑ 19.54% ↑

  • Your DARE officer said drugs are bad, but according to Danaher, they’re very cool. So cool, in fact, that they’re worth paying a “significant premium” for.
  • At least, that’s what we’ve heard after watching shares in the contract drug maker Catalent soar nearly 20% yesterday on news that life sciences company Danaher plans to target the firm for an acquisition.
  • Almost no information on the financials behind the alleged deal was announced, but a “person familiar with the matter” claimed it would be at a “significant premium.” The market heard that and raised the bet by 19.5% while simultaneously dumping Danaher by 2.3%.
  • Just trust them, apes; they promised any potential buy price would be a premium. Wall Street would never lie to us like that…right?

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What's Rotten

Chegg ($CHGG) ↓ 21.82% (AH) ↓

  • Turns out the cheating market may have some competition on its hands. The firm that pandemic-era students relied on most to not fail out of school and disappoint their parents even more has taken a turn for the worst.
  • Leading into yesterday’s post-market earnings, Chegg only slipped a measly 1.5%. After the report, all hell broke loose; despite some decently strong quarterly numbers, the firm shed over 20% of its value in about 25 minutes.
  • EPS clocked in almost exactly in line with expectations, posting $0.40 vs. $0.39 expected, while sales did the same, beating marginally. But as always, you don’t buy or sell a stock because of what it did; you buy or sell it based on what you think it will do.
  • And that was the problem. Full-year guidance for 2023 was abysmal, as using Chegg to cheat on exams is a lot harder when you actually have to show up somewhere to take it. Not to mention, ChatGPT has, in fact, entered the…chat.

Tyson Foods ($TSN) ↓ 4.61% ↓

  • I love putting meat in my mouth as much as the next guy, but I sure wouldn’t like it in my portfolio after watching Tyson tumble yesterday.
  • Shares in the US’s largest meat company by sales tumbled (yes, 4% is a lot for a blue chip like this) yesterday following their Q1 earnings figures. Why the last quarter of the calendar year is their first fiscal quarter is beyond me, but let’s see what went wrong.
  • Chicken, beef, and pork. Not only a delicious meal, but those meats are the core driver of this meat-packing major. Basically, Tyson was prepared to sell a lot of chicken and a little of the other stuff in the second half of last year. Turns out consumers wanted the exact opposite.
  • Not only was production for beef and pork far higher than expected, driving prices down, but the firm overshot on chicken inventory so much that they had to start slinging this meat at hefty discounts. It was a lose-lose situation, much like what the company’s animals go through their entire lives before ending up on your dinner table (again, Happy Tuesday).

Data Peel

data peel

Source


Thought Banana

That Didn’t Take Long

The only thing slow about Google is how long it took to realize that half their staff spends most of their day making coffee and TikToks.

Slow and Google aren’t exactly synonyms, and man, did that hold true when it comes to launching an AI chatbot. Yesterday, news broke that the search provider/literal God will be implementing its very own version of ChatGPT along with its somewhat-popular search engine.

Companies like Perplexity.ai, Neeva, and even god damn Bing have already implemented tools from OpenAI up to and including ChatGPT to enhance their search experience. Not wanting to lose too much of their (“alleged”) monopoly on this market, Google figured it had to step up.

And on Monday, it did. In a blog post by CEO Sundar Pichai himself, Google gave us the rundown of its game plan to not lose the market it has controlled for 20+ years.

That plan, as many assumed, relies heavily on the firm’s very own large language model, called LaMDA. Like GPT-3, the model powering ChatGPT, LaMDA has been in the works for years, only recently realizing its first true purpose.

And despite LaMDA being a pretty damn good name already, Google decided to nerdify it, like they do to everything else, and give it the name of that kid in middle school that got bullied all the time, naming it “Bard.”

This week, the homie Bard will be launched to all Google employees (nerdily known as “Googlers”) as well as a handful of “trusted testers” with preliminary feedback and results expected to be shared in the coming weeks. Bard will essentially be used side-by-side with the existing search engine with the ability to “read” web pages and distill the information down to a concise and (hopefully) accurate answer presented to users.

It’s like a half-step in the right direction. See, using these AI-powered apps isn’t exactly going to pad Google or Microsoft’s profits anytime soon. Estimates from late ‘22 pegged OpenAI as losing over $100,000/day to run ChatGPT, and the thing has only expanded from there. In order to *not* flush all their cash down the drain on computing costs, Sundar & Co. have decided to power the initial launch of Bard with a light-LaMDA version, not fully unleashing the beast just yet.

Like most technologies, computing costs have been following a steep downtrend, but it’s simply still such a new technology that we got a long way to go. As these costs continue to fall, the popularity and efficacy of chatbot AIs to answer all of your absurd questions will only continue to rise.

Be patient. The promise here is to answer literally any question you could ever think of. Should be worth the wait, no?

The big question: Can Google defend its formerly endless moat around the search market with a poorly named AI chatbot? How will these bots, or other technologies, improve the internet’s ability to answer my every question and zap my brain with some nice dopamine?


Banana Brain Teaser

Yesterday — I have a gold bar that weighs 7 kg, and I would like to give 1 kg of gold to a person every day for a week. I am only allowed to cut the bar twice. How can I do this?

Once you have figured out that you can actually take back parts of the gold (you will quickly figure there’s no way to do it otherwise), the is to process step by step.

I cut the bar into 3 pieces: a 1kg piece, a 2kg piece, and a 4kg piece.

  • Day 1: I give the 1kg piece.
  • Day 2: I give the 2kg piece and take back the 1kg piece.
  • Day 3: I give the 1kg piece.
  • Day 4: I give the 4kg piece and take back the other 2 pieces.
  • Day 5: I give the 1kg piece.
  • Day 6: I give the 2kg piece and take back the 1kg piece.
  • Day 7: I give the 1kg piece.

Today — It’s 150 bananas off the Venture Capital Course for the first 3 correct respondents. LFG!

What has a head, a tail, is brown, and has no legs?

Shoot us your guesses at [email protected] with the subject line Banana Brain Teaser or simply click here to reply!


Wise Investor Says

“If you want to have a better performance than the crowd, you must do things differently from the crowd.” — Sir John Templeton



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