“In the wake of the housing bust, Congressman Barney Frank and Senator Christopher Dodd, as chairmen of the House and Senate committees most involved in the housing market — and long-time promoters of the very policies that led the housing boom and bust — were all over the media, where they were treated as experts, [as it they were] able to explain the problems and provide solutions.”
– Thomas Sowell, The Housing Boom and Bust
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August 8, 2024 — The recent market volatility has averted the media’s attention away from the alarming 3rd quarter earnings reports which have been released so far this season.
The general trend? Heh.
Across the board, companies are reporting higher prices… and consumers who are more reluctant to spend.
Disney’s theme parks, if there ever was a bellwether for fatuous spending, reported slower bookings to visit Goofy and Mickey in Florida. Procter & Gamble, a proxy for household staples, offered “soft guidance” on bowl cleaners and sink scrubbers.
Southwest Airlines went a bit further. They’re giving up the airline’s biggest “moat”; their greatest advantage is the battle for a portion of your travel budget.
Once proudly announcing “You’re free to move about the country,” the Dallas-based “Love” airline now says they’re going to refit their entire fleet to ditch the decades-old practice that made the airline unique… and a godsend to frequent business travelers.
By the end of 2025, you’ll no longer have to play 24-hour check-in roulette to get your spot in the boarding line. You will have the opportunity to pay extra for more legroom, however. (Bonus!)
Earnings reports across consumers and retailers alike suggest the divide between savings (sic) and consumer debt may be stretching the balloon a little thin. We’ve been routinely checking in on the Fed’s consumer debt v. personal savings chart in anticipation of some reversal in the trend:
Consumer Debt v. Personal Savings during the pandemic and the period of aggressive inflation that followed, 2021-2024
Somehow, real estate agents in this environment have managed, more or less, to keep up the pretense that it’s still a good time to buy. You can refinance when rates go down, after all!
Mortgage rates did hit a two-year low of 5.61% for a 30-year fixed, briefly, on Tuesday. Which, ironically, slows the market for existing residential and rental properties as buyers, right alongside stock traders, anticipate further cuts from the Fed.
Long-time compadre and founding Grey Swan contributor John Rubino takes a deeper look at an opportunity that may be rising quickly in one sector of the real estate market we’ve only touched on briefly until now. Enjoy ~~ Addison
CONTINUED BELOW…
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Airbnb Houses Are About to Flood the Market
John Rubino, John Rubino Substack
The current housing bubble features three new players, all of whom are about to switch from “buy/hold” to “panic sell.” They are:
- Boomers forced by declining health and/or shrinking stock portfolios to sell their McMansions.
- Wall Street private equity “landlords” who gorged on houses and apartment buildings (sometimes buying up entire neighborhoods at above-market rates) forced by the coming recession to shed massive amounts of inventory.
- And — the subject of this post — Airbnb landlords who discover that their rosy cash flow projections were fantasies. Many will have to liquidate their portfolios to avoid bankruptcy.
From today’s Zero Hedge:
Shares of Airbnb plummeted in premarket trading in New York after the company reported disappointing second-quarter earnings, falling short of Wall Street’s expectations, and issued a warning about slowing demand from US vacationers. This development comes amid rising recession risks in the US, with the consumer downturn worsening for the working poor and middle class due to elevated inflation and high interest rates.
Airbnb warned that it is “seeing shorter booking lead times globally and some signs of slowing demand from US guests.”
With consumer spending slowing overall, it’s no surprise that vacation spending is one of the first forms of discretionary spending that households cut to preserve their cash.
Meanwhile, Airbnb shares shed 15% on Wednesday following its earnings report:
Airbnb shares have given up all their year-to-date gains. This latest earnings report just confirms one thing: The consumer downturn is here. And it’s gaining momentum.
Here’s Where It Gets Interesting
As these three new real estate players (Boomers, private equity, Airbnb landlords) start selling, they’ll be confronted by potential buyers who simply can’t afford anything at current prices.
That’s when the panic selling erupts, as property owners try to get something, anything for their rapidly depreciating assets. You can bet that as this is written, they’re watching Airbnb’s stock and formulating plans to get out while the getting is, if not good, at least possible. ~ John Rubino, John Rubino Substack
So it goes,
Addison Wiggin
Founder, The Wiggin Sessions
P.S.: Last week, we caught up with Mr. Rubino on the Wiggin Sessions @ Grey Swan. We recorded a lengthy, nearly two-hour, interview covering among other things: the bubble in AI stocks and what to watch out for; the prospect of a policy response to a stock market crash creating more mayhem; and a raucous discussion of a topic we’re increasingly obsessed with: the rise of (destructive) populist politics in both parties and what that means for our money, mostly.
Keep your eyes peeled… we’re still working out the kinks on the website!
P.P.S.: How did we get here? An alternative view of the financial, economic, and political history of the United States from Demise of the Dollar through Financial Reckoning Day and on to Empire of Debt — all three books are available in their third post-pandemic editions.
(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at AmazonandBarnes & Noble or if you prefer one of these sites:Bookshop.org; Books-A-Million; or Target.)
Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com
Past performance is not indicative of future returns, investing involves risk. See disclosures masterworks.com/cd
