Welcome to my first weekly newsletter! The goal here is to challenge readers to think critically about timely information so that they can navigate the world more effectively. I want everyone who takes the time to read this to have a more accurate worldview, so that they are better off! There are many competing narratives in the world. Let’s work together to find out what’s true.
How High Can Home Prices Go?
In the 1960’s, the ratio of home prices to household income in the U.S. was 2. That means 2 years of your gross income equaled the price of your house. So if say, the average household income was $100,000 the average home price was $200,000.
Long gone are those days. With interest rates at all-time lows the ratio is now 4.7 nationwide. That means if the average household income was $100,000 the average home price would be $470,000.
In desirable areas like California’s coast, where housing supply is constrained due to strict zoning (think no high rises along the coast) that ratio is 8+.
This steep appreciation in home values far outweighs any savings from reduced interest rates for first time homeowners. Owning your own home is farther away than ever before for most Americans.
But what is to the detriment of renters and first-time homebuyers has been a boon for landlords who have seen their property values and rental income balloon. Always think of what side of the trade you are on. The rising tide of technology lifts all boats, but there are still relative winners and losers.
This week the Wall Street Journal reported on how developers are converting closed motels into apartments. By purchasing these motels for approximately half of what it would take to build a new apartment complex these developers are able to charge lower rents and still reap higher returns. And with many struggling financially, these motel units are filling up fast.
These developers are sophisticated hedge funds and private equity groups. What’s interesting is that they are able to leverage near zero-percent interest debt to acquire these units, while average families struggle to buy into expensive housing markets and thereby realize appreciation.
Is Hyper-Inflation Around the Corner?
This week Bitcoin broke $30,000 for the first time. For years proponents of the digital currency have touted its fixed supply of 21 million coins as a hedge against inflation.
For those ordinary families that see home prices continually appreciate out of their grasp, saving in Bitcoin may prove a way to reverse the trend.
Jack Mallers, a Bitcoin entrepreneur, frames it this way:
Meanwhile Politico reported this week that former Chair of the Federal Reserve and incoming Treasury Secretary Janet Yellen has raked in more than $7.2 million in speaking fees in the last two years.
Hard money proponents argue that her policy of pumping the economy full of dollars has led to increasing inequality. For those that own real assets, like a home, wealth is preserved as valuations rise in proportion to inflation, while the have nots fall further behind.
When it comes to economic recovery from the “pandemic,” pundits have labeled this trend the K-shaped recovery. Those who have real assets are better off, while those who don’t are worse off.
Just take a look at this most recent round of stimulus from the federal government to see what I mean. The federal government passed a bill to spend $900 billion. That breaks down to $2,127 per U.S. citizen, but only a fraction of the population will receive a $600 check. The rest of the money went to special interests.
Counting all stimulus packages the United States has spent more than $18,000 per capita. Most of this money has made its way to businesses not individuals. Again, think of what side of the trade you are on…
The simple takeaway is this: even if you invest all of your $600 stimulus check wisely you are losing purchasing power.
Narrative Wars in California
The high cost of housing has driven many middle-class families out of the golden state in recent years. But now some in elite tech are leaving too, or at least that’s the narrative a subset of them are forwarding on twitter.
Here are some of their biggest gripes that caught my eye:
Many of these highly successful people are leaving, arguing that voting with your feet is the only rational move when the politicians who you subsidize with your tax revenue relentlessly attack you.
These California politicians are of the same persuasion as Assemblywoman Lorena Gonzalez who told Elon Musk to go F*ck himself.
Now Elon Musk resides in Texas.
News that will make you smarter:
Philadelphia 76ers' Daryl Morey was worried Hong Kong tweet might end NBA career
What to look for: Read closely to see how carefully the narrative is framed to protect the interests of ESPN and Disney, so as not to anger China. As someone who has been in the room, I can bet this piece was edited and reviewed many times before being approved for publication.
5G Auction Shatters Record as Bidding Tops $69 Billion
Questions to ask: Why does the U.S government get to auction rights to 5G providers in the first place? Where does the money go? Why are providers willing to pay so much?
London Development to Test Demand for 15-Minute Cities After Covid-19
Key Quote: “These projects have been taking off in recent years because it has become clear that suburban and outer-city homeowners want the same access to amenities as those who live in city centers, said DominicGrace, head of London residential development at real-estate firm Savills.
Spotify made huge investments in podcasts — here’s how it plans to make them pay off
Key Insight: Spotify’s ad-insertion tool allows targeted advertising for each user, even for premium subscribers who are used to making monthly payments in exchange for no advertisements.
NYC’s elite K-12 Dalton School is having a race meltdown
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