Financial Engineering - Paul Volcker, former Chair of the Federal Reserve, once expressed a belief that the only worthwhile financial innovation of the last 20 years was the ATM. He may have said that in 2009, but in 2021, private equity firms are ensuring that still rings true.
As their most recent attraction in financial scumbaggery, P.E. firms have loaded their portfolio companies with something called "dividend recapitalization debt." Basically, the P.E. firms will load up their portfolio companies with debt for the sole purpose of paying dividends to the company owners, who just so happen to be those same P.E. firms. I know, I couldn't believe this was a thing either. Rather than issuing debt or taking leftover capital to reinvest in their business and grow for the long term, P.E. firms are doing the most P.E.-thing you can imagine, turning their portfolio companies into ATM's.
Interest rates run the world, and it's no different here. In a time of negative real yields, craving for high-yielding debt is at all-time highs. This is one, certainly bold, way to get that allocation for investors and owners...regardless of how objectively scummy it is. I wonder why the rest of the world has a negative view of high finance?
New Home Sales - Am I the only one that's low key praying for a housing market collapse? Like c'mon man, I don't want to have to sell my kidney for the down payment.
Data around new home sales in September dropped yesterday and the market is still searing hot. Despite prices being largely at or near all time highs, people kept buying new homes, 800,000 of them, to be exact. Data for the month of August shows 740,000 new homes were bought, meaning that new homes sales continued to accelerate well past economist expectations of 756,000. The fat cash piles consumers are sitting on combined with low-rate mortgages really just create the perfect storm for pricing us youngins out of the market.