Welcome to another edition. Here are today’s entries:
01. Housing is Behaving in Weird Ways
What does this show?
Housing inventory is at record low levels in the US, but prices are still falling.
Why does it matter?
Normally when you shrink the supply of something that people want, the price of that thing goes up. Housing is not normal that way. Its price tends to go up mostly when it’s price tends to go up. In other words, the best predictor of housing prices going up is that they were recently going up. And, of course, the best predictor of housing prices going down is that they were recently going down. Inventory, weirdly, only comes and goes with respect to making an appearance in this play. This is partly because people are, innately momentum, investors, alternately speculators and fearful. But there is also a demographic factor here: the U.S. has an aging population, and an increasing percentage of people simply don’t want to leave their homes, so the stock of housing continues to shrink as the population ages. This is likely to be the case for many years to come.
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02. The Excess Savings Firewall That Isn’t
What does this show?
Excess savings from the pandemic is slowly coming down, but it still remains a very large number in the U.S.
Why does it matter?
It’s hard not to notice that excess savings in the US remains at historically high levels. Some think this that there is still ample reason to expect consumers to continue spending, that it is a kind of economic firewall, a barrier preventing job losses in a weakening economy from leaking over into consumer spending. This is logical, plausible, and wrong. The reality, as we know from behavioral models, is that consumers look past these savings and see a weakening economy, and are more likely to hang onto it, rather than run it down, thinking that it may become necessary sooner than they might like. This is a firewall in name only.
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03. Cornering the Market on Money-Losing Companies
What does this show?
The proportion of money-losing companies on US capital markets has gone up by a factor of 7 since 1980.
Why does it matter?
Capital markets used to be the place companies went when they established a viable business, and they maybe needed to raise money, share out equity, or just have some more liquidy for the shares. That has changed dramatically in recent years, with a growing fraction of companies that are publicly traded losing money, often prodigious amounts. And this has consequences, obviously. Companies without viable business models tend to require more financing, which requires more dilution, or more debt, or both. And, at the same time, a larger proportion of such companies disappear, given that they’ve never demonstrated financial viability in the first place which leads to a great deal more listing flux on US capital markets. It is also one of the reasons why the number of publicly traded companies in the US has declined sharply over the last three decades. The upshot of the preceding, of course, is a greater concentration of capital in a smaller number of companies, which is one of the explanations for persistently inflated price earnings multiples.
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