It’s getting better, just not quickly enough.  The streets feel far more crowded than 1-2 years ago, but the majority of business owners are squeezed on both ends by higher wages, inflating expenses, and lower foot traffic.  Today we focus on two interesting niches that have not quite recovered.

Theater Space For Rent

Pop-up event space has always been tricky to find in premium Midtown locations, but now off-Broadway, smaller theaters such as Chain Theatre are regularly offering their spaces to mitigate the shortfall.  It’s unclear what you might host in a 99-seat theatre, complete with a 2nd story escape door and backstage dressing room.  A corporate outing for all-hands meetings?  A hackathon?  Your own escape-room themed birthday party?

It would probably be cheaper than any of the usual hotel spaces to hold a corporate off-site event, but the dimensions don’t exactly lend themselves well to the usual coat check, catering, bar, and networking.  Plus, you are paying for the trap door!  How exactly will your company all-hands meeting use it?  (HR and Security will not be happy)

Still, at least they should have the AV situation mostly under control.  They also have two smaller spaces which could make for breakout rooms at a reasonable additional cost.  It’s unclear if you need to use unionized labor or can bring in your own company, but the restrictions may be more flexible than those at hotels and traditional venues.  Don’t expect theaters to turn into NYC apartments for rent anytime soon, though.  Despite the many creative zoning variances under discussion, theater space is not on the list.

Bridge Clubs in Crisis

Before the pandemic, Manhattan was home to the largest bridge club in the country, and over the years the Greater New York Bridge Association included over 4000 members that frequented 4 fulltime clubs and several private invitational clubs (such as the Regency Whist Club, University Club, and Cosmopolitan Club).  Unfortunately, bridge players are an aging population (median age 74).  They were among the most at-risk group during Covid and many migrated to online bridge or stopped playing altogether.

The once thriving bridge clubs would hold daily tournaments and lessons twice a day, with the main game regularly reaching capacity at 140 players with tables overflowing to the elevator lobby, with many more taking lessons or playing a newcomer game on a different floor.  Evening and weekend games thrived, and some morning sessions ensured heavy utilization of the space: approximately 60 hours of bridge usage per week.

Fast-forward to 2024 and Manhattan is down to one club in a significantly smaller space which fills to 60% capacity on a good day.  There are promising signs for the Wed evening game and a monthly Sunday Swiss teams, but most other evening initiatives have fizzled out.  Club management hiked prices 15% this month, $40 to play in the afternoon main game when online equivalent price is $7 (sans commute, Covid, and getting dressed).

Space Utilization Solutions?

Perhaps the real problem is utilization.  One theory: a space in Midtown New York pretty much needs to be in use at least 40 hours a week in order to make economic sense (pied-à-terre excluded, by definition they do not make economic sense).  Or, when used for fewer hours, the space is packed.  A top flight Broadway show still runs 6 days a week with 2 matinees.  Less popular shows don’t quite meet the bar.  A fulltime bridge club holding only 20 hours of games per week will fold and needs to supplement with Canasta, Mah Jongg, Scrabble, and Backgammon (at one point they considered Magic: The Gathering).

Would it make sense in the future to build multi-purpose space that has one group heavily utilizing only during the day and another group only in the evenings?  What would it take to build a space configurable to both bridge and theater, all in the same day?  More amusing, could we extend the idea to apartments and offices?  Instead of “work-from-home”, what if we reverse the concept to “sleep-at-office” where you save money on rent because everything you need, from showers to beds to baby cribs, could be found at the office?

Ok, sleep-at-office is probably not feasible, especially once families and children enter the picture.  But we should continue to brainstorm creative and quirky solutions that could appeal to an open-minded niche and unlock many hours of idle space-time.  By pushing the boundaries of what normal zoning and building codes allow, we might just stumble into a sustainable new normal.

The post Midtown New York 2024: Empty Offices, Theaters, and Bridge Clubs appeared first on CitySignal.

Insurance Concerns:  Taiwan Earthquake Case Study

Why does it matter?  When you buy homeowner’s or disaster insurance for your house, you need a policy that covers the cost of rebuilding the damaged building.  You do NOT get paid for the entire value of your real estate, because in theory the land can not be damaged by fires, flooding, earthquakes, or other problems that can ordinarily destroy a building.  Land is forever finite, and the value comes from the location, surrounding neighborhood, and the potential highest and best use of the land, as they say.

Unfortunately, the tragic earthquake claimed over a dozen lives with many more injured.  Those fortunate enough to avoid physical harm will still suffer serious financial consequences, despite the vast majority having some form of basic earthquake insurance.  First, the authorities quickly ruled that owners of the Uranus Condo must continue paying the mortgages, despite the total destruction and uninhabitability of their real estate.  In fact, during the 9/21 earthquake many years prior, banks were able to convert mortgage debts into personal debts for homeowners.

As a one-two punch, most insurance payouts would not exceed $50K USD, far less than a typical home, even in Hualien, Taiwan.   The rationale?  You guessed it, our theme today is the value is in the land, not the building!  To estimate the coverage gap, we can check the Taiwan equivalent of the RealtyHop property record search to find recent purchases at the 天王星 building.  Someone JUST purchased two months ago in February 2024, although as a $1.6M NTD studio, the loss of coverage should be minimal.  Less fortunate is the buyer of the 3rd floor condo less than one year prior, who paid $2.7M NTD, possibly expecting a decently high cap rate and more appreciation on their investment. Cap rates on residential buildings in Hualian range from 4-5%.  The $1.6M studio owner could have rented it out for about 9K a month, netting about 6K after non-financing expenses.  Instead, these owners will need to continue paying their mortgages, not have a viable unit to use as a home or source of sublet income, AND the insurance payout is not enough to find an equivalent new place or even payoff the financing.  Imagine if the earthquake had impacted a larger city such as Taipei — the losses from the insurance cap could be staggering (a $1.5M NTD payout on a similar studio in a 30-year old building might not even cover 10% of the replacement cost in the urban cities).

Tax Depreciation: Do Not Depreciate Land

There is a much more common and less morbid situation where the land, building, and real estate values cause some confusion: cost basis and tax depreciation.  The IRS allows a landlord to depreciate residential real estate assuming a 27.5 year useful lifespan.  That is, the day you buy a house intendnig to rent it out, whether the house is brand new or built 50 years ago, the timer starts on the 27.5 years.  You are allowed to take a depreciation expense every year.

Say you decided to buy the house at 345 Northeast 163rd Street in Golden Glades, Miami, FL for the asking price of $780K, all cash (there is a 2.5% buyer agent fee, so assume your negotiation skills made that go away).  The high cap rate attracts you, so you manage to sublet it for $4000 a month while paying $564 in real estate taxes and $436 in maintenance and management of various sorts (nice round numbers, $3K a month profit).  You are making money and therefore owe income tax.  However, thanks to the wonders of depreciation, you can reduce the tax and increase cashflow.

Can you simply take a straight-line depreciation and divide $780K by 27.5 to get an annual $28,363 deduction?   Not so fast!  The IRS won’t let you depreciate the entire purchase price of the home.  Instead, they suggest pouring over assessor data to separate out the value of the land from that of the home.  Let’s take a closer look at the RealtyHop data.  Notice that the folks at the Miami-Dade County have conveniently broken down what they feel is the market value, how much is based on land, and how much is based on the “improvements” to the land (hint: the house sitting on the land is the improvement).

So What Am I Allowed to Depreciate?

After consulting with several experienced landlords, it seems everyone does things a little differently.  Some people downright ignore this land issue and depreciate the entire $780K.  However, that is almost certainly illegal.  The proper approach is to try to tease out the value of the house itself, aka the improvements, by assigning some value to the land and the rest to the house.  In our Golden Glades example above, the county assigned $257,315 of value to the land.  Perhaps that means the remainder of the purchase price must be the house, a simple subtraction.

Yikes, but is that correct?  Remember, these valuations are based on the most recent transaction of $400K a few years ago.  Now the asking price is much higher — is it because the seller is a home flipper who put in tons of sweat equity, upgrades, and renovations to add $380K in value?  Or do you need to equally scale the ratio of the land and house valuations?  The IRS actually gives us some depreciation guidance for separating land and home, but it’s not for the faint of heart (emphasis added).

They proceed with an example:

Back to our Golden Glades home, the fair market value of our ratio seems to be $165,715/$423,030 = 39.2%.   Meaning the cost basis we can depreciate for the house is only 39.2% of what we originally calculated above.  Darn.

Things get a little more optimistic, or complicated, because Miami actually quotes a different number for assessed value and market value.  Look up the address on their county assessor website and you will see the assessed value in 2023 is only $305,786, with no breakdown given between land and home.  This is due to some local rule called the “Save Our Homes Homestead Cap“.  We also see a wildly fluctuating ratio between home and land in their 2021-2023 data, meaning the IRS suggestion to use a constant FMV ratio based on your purchase date is somewhat dubious.

In the future, we may cover solutions to this problem, including itemizing improvements and putting renovations on their own separate depreciation schedules from the rest of the house.  We can also look at various ways to interpret assessment cap situations such as the one in Florida and other state and local adjustments.

The post Which Is More Valuable, The Land Or The Building? appeared first on CitySignal.

Less Ideal: The 401K Loan

Most readers might think we are discussing the 401k loan trick.  To be fair, borrowing against your 401k is a reasonable option.  You can take a loan penalty-free and tax-free from your pre-tax 401k, as long as you “pay yourself back with interest,” as they say.

That point of paying yourself back with interest is entirely confusing to almost everyone and even the so-called financial experts tend to get it wrong.  Yes, you have to pay back what you borrowed, but that’s just taking the money you got up front and putting it back in later.  No harm done.  You didn’t have to pay taxes or penalties on the lump sum you took out, so it’s only fair that you use post-tax dollars to pay it back later.

The interest is the weird part. Who gets the interest, your employer, your fellow employees in the plan, the IRS, or someone else?  Turns out all of those are wrong.  You get the interest!  What?!?  Yes, you actually pay the interest and it increases the balance of your account.  However, that increased balance is still considered pre-tax dollars much later on in life when you are finally required to withdraw the old-fashioned way at age 70+.

There are other disadvantages:  the loan duration is only 5 years (not the 30 you might want when buying investment or personal property).  You also can’t contribute new funds into the 401k while the loan is outstanding (although weird loopholes may apply if you have multiple jobs or already changed jobs, or have your own self-employed 401k).

You don’t get any sort of tax deduction on what you pay back, otherwise you’d be getting a tax deduction twice.  If that sounds confusing, don’t even worry about it.  It’s not important – just know that the 401k loan is a very reasonable way to tap your retirement account at a very low interest rate, but has limitations.

Very Limited: The First Time Homebuyer

Most people have heard about a penalty-free withdraw for first time homebuyers, but the limit is so low in this day and age that it’s barely worth mentioning.  You can take up to $10K out of any IRA without penalty, but you must still pay the tax.  In most parts of the country, that isn’t going to make much of a dent in the down payment.  Perhaps if they indexed this to inflation it would help a little, but it’s one of those laws that came out over a decade ago that no one seems inclined to fix.  Next.

Best Retirement Account Early Withdrawal Method: SEPP Withdrawal

For those who want to tap a large retirement account before age 59.5, there is the little known and totally legal method called SEPP Withdrawals.  SEPP stands for Substantially Equal Periodic Payments, and it is a strange IRS loophole created for savers who claim they are retiring early.  It’s also know as 72(t) payments, because it is codified in section 72(t) of the complex IRS rules governing retirement accounts.

You can start at almost any age earlier than the usual 59.5, and there would be no point to starting later because you can withdraw penalty-free the regular way.

Why is the SEPP method better than the others?

1.)  There is no arbitrarily low dollar cap on the amount you can take.  If you have a multi-million dollar balance (or in Peter Thiel’s case over a billion), then you can drain it all over the withdrawal period.

2.)  It counts as income in case you want to qualify for a loan or condo / co-op purchase.  Early retirees or those with lots of savings but difficult-to-document income can use these withdrawals as an income source for any situation that requires income but not assets.

3.) You can decide how much to take.  You don’t have to drain all of it and you can basically stop once you are 59.5 or after 5 years, whichever is later.

4.) There is no 10% early withdrawal penalty.

What’s the catch?  You are still limited to how much you can take in any given year.  It is approximately 1/30th of the amount in your retirement account per year (even less if you opt in when extremely young, say 35-45).  That’s because the rules require you to simulate a retirement that begins the day you withdraw, in lieu of the normal 60-70 age range.

Still, of all the possible methods, this is the least used and most beneficial way to tap into a large retirement account.  Best of all, the tax is staggered throughout many years, so hopefully you can optimize further by engineering a lower tax bracket during your years of withdraw.  Contrast this with the much-loved backdoor Roth IRA conversion — also an interesting technique — but one that leaves you with a huge lump sum tax bill the year you do it.

Btw, nothing stops you from taking some of these SEPP payments and spinning up a new Roth IRA or Roth 401k, a topic for next time…

The Main Downside to Every Early Withdraw

What’s the main downside to any of these methods?  Opportunity Cost.  For the past century, buy-and-hold as worked very well over any long period, and when you withdraw that money, you are likely doing so because you want to spend it.  Are you willing to give up the age-old long term stock market return of 8%?

It’s important to call out a particular group that might be hoping to withdraw early:  investors who want to beat the market using alternative asset classes.  Do you think your real estate, startup angel investing, crypto speculation, or futures and options trading has a chance of beating the market?  You might be considering taking money out of the safe and regulated world of retirement accounts to take an increased gamble.  Please don’t.  Very very few people can beat the market long term, and those that do aren’t the ones who need to tap their 401k’s for cash.

The post The Least Known Secret to Avoid IRA and 401K Early Withdrawal Penalties appeared first on CitySignal.

What’s in the new Universal Co-brokerage Agreement, and does any of it address commissions?  There are 5 distinct changes:

1.)  Commercial and retail spaces in a residential building may be listed in the REBNY RLS.

Normally, the REBNY RLS is only for residential listings (RLS == Residential Listing Service).  However, now these commercial units will be allowed in the RLS, however, they are subject to the same simultaneous advertisement rules.  If you do choose to include the listing the RLS, it must be done within 24 hours of any public marketing of the listing.  You may not put it in a commercial database for a week and then decide to widen the net using the RLS.  That would be a violation of the RLS cooperation mandate.

2.)  Coming Soon Listings

While not new for 2024, the Coming Soon listings will now be formally codified in the REBNY RLS Universal Co-brokerage Agreement.  Also, there are new rules clarifying that unsolicited offers received on a Coming Soon status listing should be presented to the seller.  However, prior to presenting any offers, the listing status must be changed to Active.

3.) Owner Opt-out Rules

Sellers and Landlords may now opt-out of the REBNY RLS by filling out some formal paperwork.  Why would they do so?  One reason would be to give a pocket listing and exclusive to the agent, but with strict instructions that they do not want any mass or public marketing done for privacy reasons.  It might be a way to give an agent a long-standing listing agreement without the pressure of accumulating a high days on market and giving the impression of a stale or undesirable home.

4.) Electronic Payments Formally Accepted

Acceptable forms of payment now include Zelle, Venmo, and other electronic funds transfers in addition to checks.

5.)  Decoupling Commissions for Broker Services

This is the big one.  It was already agree upon by REBNY in October and so far REBNY hasn’t felt like it requires any additional changes since the landmark Sitzer/Burnett suit.

First, there is no standard commission.  REBNY discourages any notion that there is a typical or mandated commission, and they are always negotiable.  Neither REBNY or the RLS fixes, controls, suggests, recommends, or maintains fees of any sort between cooperating participants on the RLS.

Offers of compensation, if any, to the buy side broker, must originate from the owner.

There is not, and never has been, a rule that REBNY prescribes a 50-50 split between cooperating brokers.  An older version of the UCBA had language that prescribes a 50-50 split only when the listing agreement between the listing broker and owner omitted any mention of compensation.  The latest version has removed these provisions.

The post REBNY Changes Their Universal Co-Brokerage Agreement appeared first on CitySignal.

How Much Does AMC Popcorn Cost?

Well, we all know the movie theater AMC popcorn is heavily marked up.  Don’t blame them, they have a captive audience and it’s their main source of profits!  According to MovieFP, these are the typical AMC theater prices for your suburban theater.

How about the at-home version?  Can they get away with nearly the same price?  The team had mixed thoughts, mostly negative.

I’m not buying that S***.  Like, it’s probably total scam. I mean movie theater popcorn Isn’t even that good.  You eat it because you are hungry.  Maybe the butter adds some value, but it’s no better than Pop Secret?  If the AMC home popcorn costs as much as that big big bucket I’m NOT down.  

To keep things a bit more positive, some reactions are to at least try it once.

Hey, it could be it could be amazing and delicious?  You’ll feel like you’re instantly transported into the movie theater? I’m definitely a snacker so maybe nostalgia is the draw.

How bad could it be?  You can always rotate back to Skinny Pop?

Was the AMC CEO Wearing Pants?

So far, Adam Aron has not release a public response to the “no pants” incident.   However, whether or not he was wearing pants seems to be no concern to retail investors.  In fact, for some, it is seen as a plus.

Only a true chad would would show up pantsless after your company almost goes bankrupt.  It’s pretty brave and I’ve got absolutely no problem with it.  

Others consider it neither positive or negative, but perhaps Mr. Aron should invest in a better web cam.  Indeed, based on the video footage, it looked like it was one of those “clip-on-monitor” cams that just came loose and dropped?  After first advocating for keeping work-from-home comfortable, the RealtyHop Managing Director finally said:

He probably makes a S*** ton of money i was more confused why he didn’t have a better webcam system going on there.  That was my bigger concern…

Tom Sosnoff from TastyTrade was their initial inspiration for whether the CEO’s behavior should give us doubts about the stock.

It’s crazy I can’t listen to that CEO like every time he talks like the stuff he spews so freaking ridiculous.  Isn’t he the guy who went on CNBC without wearing any pants??

What Are Options Traders Doing in AMC?

Considering the RealtyHop team never actually discussed any financials or fundamentals for AMC, they ended up placing a rather complex four-legged options trade.  Based mostly on technical analysis and implied volatilities, the team wrote an iron condor on AMC, hoping to profit if AMC neither drops or rallies significantly for the next month or so.  On the downside, they sold a put at $15 strike and bought a put at $10, risking a potential $500 on the downside per lot.  Then they sold a $39 strike call and covered it with a $49 strike call, all legs expiring on February 18th.

Because this was part of the RealtyHop Mortgage Prepayment Challenge, they put on 10 contracts per leg.  That generated about $800 in net credit, enough for about half a month of mortgage payment.  The maximum risk is as high as $9200 if AMC rallies back to meme status (over $44 by mid-February).  If AMC crashes to below $10, they could lose $4200.   It seems like a risky way to earn $800, but we’ll see how it goes.  Their earlier Tesla trade worked well, after all.

The post AMC-branded Popcorn Fails to Impress, CEO Still Wins Support appeared first on CitySignal.

Those of us who remember the post-2008 crisis will realize the sharp change.  Bernanke never felt a need to quickly trim the balance sheet acquired via quantitative easing.  He was on record saying they could foresee simply holding all of the assets to maturity, quietly collecting coupons and ultimately the principal at maturity.

Profits Amid Tech Rout

The reaction has been swift.  The Nasdaq closed down 500 points following a nearly 300 point drop the day prior.  Futures traded yet another 150 points lower during Asia hours.  Tesla even gave back all of the January 3rd gains following the release of their annual shipment numbers.

However, options traders are coming up with creative strategies to take advantage of the endless two-sided action.  Rather than picking a level to outright short the stock, the RealtyHop quants build in a buffer that allows for more room to rally while capitalizing on the hefty call option premiums.  They took profits and closed the TSLA trade only two days later.  Still, they are losing money on some other strangle positions, so whether the mortgage prepayment challenge succeeds is very much TBD with 247 or so trading days remaining.

The post Options Traders Profiting on New Year Tech Meltdown appeared first on CitySignal.

The 2022 TSLA New Year Greeting

How does a stock jump 13% on the first trading day of the new year?  Easy, they release their 2021 shipment numbers on January 2nd, Sunday afternoon before markets in Asia open.  Given that everyone seems to be on the waiting list for a Model 3, X, or Y, is it any surprise they beat all Wall Street expectations?  It looks like they are shipping 930,000 cars a year now, with the vast majority in the 3 and Y category.  Almost one third of that came in just the last 3 months of the year, showing accelerating production capabilities.

Is Elon Done Selling?

The stock hasn’t been entirely straight up in 2021.  After reaching all-time highs in early November 2021, CEO Elon Musk mentioned he was planning to sell a bunch of the stock to pay taxes on…. all of his gains from his TSLA stock options!  That caused a tumble for a week or so.  However, starting December 21st, the stock rebounded even more violently.  In less than 10 trading days, it was up 300 points, clocking in a gain of over $300 billion dollars in market cap!

Why the recent run up BEFORE the delivery numbers?  Some say it’s because Elon announced he was done selling his shares…

Bulls, Bears, and Vol Traders Placing Bets

Whether bullish or bearish, it seems all trades are taking positions in TSLA.  It is again a WallStreetBets favorite name to follow.  Even the research team that created the RealtyHop Mortgage Center is publishing complex videos on executing Tesla option combo trading strategies.  Personally, the video seemed a bit long-winded and verbose, but it seemed to be an interesting albeit risky way to profit from the mania.

The trade involves simultaneously buying out of the money call options on Tesla but also selling twice as many call options even further out of the money.  It can work brilliantly if Tesla only gradually glides upwards.  It even does well if the stock lingers where it is and when it drops.  However, if Tesla were to announce another 5 to 1 stock split, would an army of traders rush in to pump the stock up 50% overnight?  It sure worked for them in July 2020…

The post Tesla Kicks Off 2022 More Polarizing Than Ever appeared first on CitySignal.

Even Y Combinator’s Hacker News was down or slow most of the afternoon.  Engineers speculate that the Facebook outage was primarily a DNS issue, and other DNS servers such as AWS were serving as a fallback from failed requests, running more slowly.  Fortunately, most Amazon and Cloudflare hosted sites were speeding along without any problems.  You can still find buy groceries on Amazon Prime, watch the rest of Squid Game on Netflix, or search for NYC Apartments for Rent.

Monday Curse:  Stocks Down for 4th Straight Monday

If that wasn’t bad enough, Facebook is also suffering their largest 1-day loss for the year, down over 5% today at $325.  They aren’t alone – every FAANG stock is down sharply today.  However, Apple, Amazon, Netflix, and Google are down a more modest 2% to 3%, in line with the rest of the Nasdaq.  FB is almost twice as large a move following yesterday’s somewhat scathing expose.

It’s been the same story the last few Mondays.  A relatively calm end to the week last Friday leads into an equally unexciting Sunday night with Asia markets opening.  Shortly after the 9:30am New York bell, though, a massive amount of selling begins.  Perhaps it is all tied to the China Evergrande incident, with lots of overseas capital reducing their risks.  Maybe this time the political game of chicken going on in Congress will blow up in a bad way.  Will some combination of all of these negate the accommodative Fed policies?  When was the last calm Monday in the markets?  You’d have to go back to September 6th.  Traders were all taking a break, thanks to Labor Day.

Safety in BTC, Tesla, Commodities, and Mortgage REITs

On large down move days, investors often take note of what is actually rallying.  Tesla stock is positive on the reports that they had record shipments in 2021 Q3, beating all expectations (although it had reached $806 before dropping to $780).  Crude Oil and Natural Gas also spiked to new highs for separate reasons.  OPEC+ claims they have a new era of cooperation and coordination that can help keep the market healthy (and profitable for them).  Bitcoin is rebounding today, shaking off China restriction concerns, with the anti-fiat crowd possibly preparing for a potential debt ceiling disaster.

One interestingly stable corner of the market has been mortgage REITs.  This asset class is often misunderstood despite playing an important part in the capital markets.  Almost all mortgage REITs hold mortgage-backed securities but leverage to magnify their returns and risk.  Even though treasuries bonds have had a volatile selloff in the past two weeks, the mortgage basis, the spread between mortgage rates and similar-duration treasuries, has stayed relatively stable.

Normally these are high-yielding but volatile products given the amount of leverage they take on underneath the hood.  Inflation concerns and volatility would also normally impact fixed-income or high-yield assets, but not this month.  Annaly Capital Management (NLY), AGNC Investment Corp (AGNC), and iShares Mortgage Real Estate Capped ETF (REM), are all flat since labor day, still chugging along with their promised 8%+ dividend yields.  However, these are extremely risky assets.  As with many other high-yield products, they are often the first to fall during a downturn, and one of the last assets to recover.

The post Monday Curse Continues, Facebook Outage and Stocks Down appeared first on CitySignal.

Political, Inflation and Taper Risks Still Loom

Although equity and bond traders faced a relatively calm day, VIX remains elevated at 21 mid-day on October 1st, 2021.  The NASDAQ and S&P are down over 5% from their all-time highs last month and newly released economic data is still discouraging.  Today’s Personal Consumption Expenditures report echoed what the CPI data showed the past two months:  prices are definitely rising.  Some world-famous economists such as Paul Krugman argue that the inflation numbers are simply transitory.  Meaning, as the world shifts from a pandemic to remote work to a new normal, there will be some dislocations in the economy as we adapt.

But if the inflation persists beyond acceptable levels, investors will conclude that the Federal Reserve will have no choice but to begin tapering their monetary policy accommodations.  The last time this happened was known as the “taper tantrum”, and eventually a hike in the Federal Funding rate.  In December 2018, a Fed rate hike ultimately led to a 15% drop from peak to trough in the S&P 500.

Despite the volatility of the past two weeks, today’s mortgage rates and home equity loans are still only slightly higher than their historic lows from the summer.  Homeowners can still lock in rates that will not rise for the lifetime of the loan, whether it is for a new home purchase, a standard refinances, or a cashout refinance.  Those who can withstand some fluctuations in their monthly payments can opt instead for a home equity line of credit, which will be pegged to a floating rate such as 6-month LIBOR.  Shorter duration cash rates will likely lead to an overall lower monthly payment during the beginning of the loan, but will very likely track the Federal Funds rate should it rise as expected in the next 2 years.

Moves For Next Week, 10/4/2021

Traders large and small definitely feel there has been a major shift in sentiment last month.  All summer long, most small pullbacks were great buy-the-dip opportunities, allowing for quick profits immediately after any small retreat in the Nasdaq or S&P.  However, the past 3 weeks have seen the most two-sided action since March of this year.  Large multi-day drops create far more risks for leveraged investors who have become accustomed to a quick rebound.

Over in the Tastytrade world, veteran options trade Tom Sosnoff recommends taking advantage of the environment by selling option premium while keeping a slight bias towards a drop in the market.  Known to some as short-vol, short-delta, these positions profit in 3 different ways: the inherent daily time decay in options as they approach expiration, a reversion in VIX as the market calms down from the heightened fear, and a safety buffer from the short-delta bias if the market drops a mild amount.  Of course, Sosnoff warns to “stay small”, as any short-options strategy can easily become highly leveraged and costly positions should the underlying crash.

The post Huge Crypto Rally Kicks Off 2021 Q4, TikTok Embraces NFTs appeared first on CitySignal.

Yellen took an even stronger stance, calling for an end to the debt ceiling.  She argued that once Congress agrees on a budget or spending plan, there should not be an additional obstacle in place to stall already-approved bills.  The current rules simply create more room for gridlock and political games, allowing a minority more power than intended.

Stocks fell to session lows shortly after the testimony, despite news from Democrats that they have most likely resolved the debt ceiling issue for a few months.  Volatility is back up across equities and rates, with VIX topping 25 as of 12:30pm ET.  Stocks are on track for their worst month since the pandemic began in March 2020, down 4% after reaching new all-time highs just after Labor Day weekend.

NYC Housing and Rates Struggle

The market volatility continues to have a broad impact on real estate and financing decisions.  With mortgage rates solidly over 3%, home affordability continues to decline in New York City.  A rental inventory crunch and the end of pandemic concessions are also squeezing Manhattan rental apartment seekers. According to listings site RentHop, open listings, exclusive listings, and for-rent-by-owner FRBO listings are all trending lower as companies delay their back-to-office mandates.

At this time last year, landlords such as TF Cornerstone were advertising over a dozen listings at Financial District staples 2 Gold Street and 45 Wall Street, with net effective rents starting at $2063 per month.  As of today, the situation is very different.  The lowest-priced studio at 45 Wall Street is over $3000, and occupancy may only begin a week into October.  Even 2 Gold Street, complete with their occassional elevator and electrical issues, only has one apartment available for immediate occupancy.

Renewal Vs Inventory Mystery?

One mystery in the rental market is why the inventory crunch exists at all.  Presumably, landlords gave amazing concessions during most of 2020, signing leases during the height of the pandemic, many which should be up for renewal right now.  Wouldn’t landlords simply raise the renewal prices enough to ensure they have ample supple?  Perhaps they did, and the tenants are happy to pay the new gross rents, without the deep discounts from their initial year.

Meanwhile, if companies are delaying their return to the offices, then we would expect a decreased demand in renewals or newcomers to the city — which should have freed up plenty of inventory as we reach the end of the summer.   Perhaps the best answer is that everyone is hedging their bets.  With so much uncertainty in the coming year, no one really wants to move and commit to a new multi-year lease.  Are many tenants now reverting to month-to-month leases, hoping to gain some clarity as we ring in 2022?

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