Dirty Thoughts: The King is Dead. Long Live the King
Regimes change. Humanity doesn’t.
The King is Dead. Long live the King.
This time is different. But this time is never different. But it really is different because the only constant is change. But the more things change, the more they stay the same. History repeats itself. No, it doesn’t - it rhymes.
theDirt is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
It’s enough to drive a person a little nuts. Can someone please tell us if this time is, in fact, different? Or not?
Dear reader, the answer is yes it is and no it isn’t. Because the old King might be dead but another one will take his place. So a different king, yes. But still a king doing the king things that kings always do. Lesson: Regimes change. Humanity doesn’t.
I recall flying the friendly skies in the year 2000. I recall the airport “security” then: very bored minimum wage private contractors in ill-fitting navy sports coats and cheap khaki pants. I recall having a rather large and obnoxious pocket knife… and getting waved through the line as though it were no big deal (knife and owner reached destination without incident - and then once again coming home). I recall travel by air as being a rather pleasant experience in that bygone era - happy people with liquids in their carry-ons and pleasant looks on their faces. We held hands. We sang. Like Woodstock but no smoking and please fasten your seatbelt when the light is on. In those days the weary traveler did not have to endure a randomly-selected frisking/interrogation prior to being wedged into a too small seat for what could be up to 12 hours for a 2-hour trip. That is unless they just, you know, cancel the flight altogether. Sorry about that.
The latter, of course, being the nightmare of flying after 9/11. The strict controls. The nervous stares. A judgmental gaze by a bored but stern government employee with crumpled blue uniform shirt, cheap dark cotton pants, and blue-gloved hands. The dank smell of sweaty, shoeless feet; the clinking of belts being removed. Even now, over 20 years after 9/11, flying feels like a cross between a prison transfer and being a stocker calf at the sale barn.
Regimes change. Humanity doesn’t. In this example, flying will never be like it was in the pre-9/11 era. Those days are gone forever. I will never again be waived through airport security with a knife in my pocket. I will forever dread the airport security process with its eery similarity to a beef slaughter plant. But I will still fly. I will still travel. I will still traverse the globe in ways largely similar to the pre-9/11 world - just in a significantly less permissive and friendly sky. That terrible day that was September 11, 2001 changed travel by air forever. But it did stop air travel. The King is dead. Long live the King.
Dear reader, guess what? This also applies to markets. Consider real estate post-2008 sub-prime crisis. Buying a house before that time (I bought my first house in 2006) was a much different experience. A tax return. A W-2. Sign here and done. Conversely, the mortgage underwriting process after the great recession feels a lot like going through an airport security line. Or maybe a proctological examination. One certainly cannot say that mortgage originators have not been doing their diligence since 2008.
And for that reason alone, this time is very much different than last time. It’s a whole new regime. The result being that while rising interest rates have certainly caused the housing market to come to a screeching slow, there are very few forced fire sales like there were last time. At least so far. But prices are still falling. Markets are still sick. Because there was a ridiculous bubble that just couldn’t last and had to pop. The King is dead. Long live the King.
I admit without shame that I occasionally slap my own wrist for modeling our current market as if it were the 2008 Financial Crisis, Part II. After all, intuition is based on experience. And as much as I try not to be, I am a linear thinker. In the words of that wise sage of our age, Lady Gaga: I just can’t help it, I was born this way (or something like that). So for the human brain it’s still: this is how it happened last time and so this is what we can expect this time.
But when trying to match ‘this time’ to ‘last time’ I have to consider which ‘last time’ I am referring to. I talked to my dad and heard the story of his first, horrific homebuying experience and dwell on whether this time is not more like the last time of the early 1980s. I read some financial history and wonder if this time is more like the short, sharp recession of 1920. And to make it all more confusing there is no shortage of shrill opining on the interwebs (especially that delightful cesspool of opinion called Twitter) where each expert offers their own version of today, their own comparison to some past event, their own set of evidence, and then their own very certain conclusions of where we are and what will happen next. Like I said, it is enough to drive a person nuts. Because no one really knows what is going to happen until it has happened. It’s all guesses and conjecture until then. Just like last time. The King is dead. Long live the King.
The lesson, for Your Humble Author at least, is that it is not only possible but completely necessary to carry both thoughts (this time being different versus not) in your head at the same time. Because the reality is that no two events anywhere throughout history were exactly the same. Ever. But sometimes they were similar. Maybe even very similar. So any direct comparisons to this time or that time might be useful but only in very limited ways. And the kicker is that we really won’t know how similar any one time is to another until well after the fact. One thing does stay fairly constant though: humanity. Humans still need to eat, drink, and live. And we will still desire to possess that which we do not have. That requires commerce and markets and money and the exchange of resources. I think we can all count on that being just like last time.
News from the Hinterland
I’ve written previously that from my very small perspective and in my own little corner of the world, the real estate markets (residential at least because that is where I’ve been playing these past two months) seem to be in the process of shaking off all of these rising interest rates. It certainly isn’t 2021 out there (thankfully; that was just silly), but the ice is already thawing. Which surprises me given that mortgage rates doubled in under a year. I figured it would have taken quite a bit longer. But right now it seems like some consumers are already in the process of saying, ‘Oh well, life goes on, let’s buy (or sell) some real estate.’ And for those who are willing and able, there are indeed some great deals to be had out there. What’s more, those sellers who can’t or don’t want to wait are beginning to accept reality, bite the bullet, and list their place. Those that absolutely need to sell are making the necessary price adjustments and concessions to be competitive with market leaders (e.g. big home builders). Those that don’t need to sell are… waiting it out. It is a thin market, but a market it is.
I also have interesting anecdata from a friend in the construction materials business: he told me that residential developments have slowed materials purchases dramatically. But he said custom home builders are still doing great and making lots of orders. I found that to be very interesting.
Folks, demand for real estate is not destroyed. Not by a long shot. It’s just on hold until the levee breaks. Building. Bubbling. Waiting to explode. Could be weeks. Could be months. Could be years. But the human desire to possess a bit of Dirt isn’t going away no matter the name of the King sitting the throne at the moment.
What it all means for real estate
Umm… no one knows. Is the Fed gonna pause? Will Uncle Jerome double down? Pivot? Will the circus tent under which our government juggles and contorts finally collapse into a useless heap of elephants and donkeys and suits and flag pins? I’ve no clue. And based on what I read, no one else does either. At this point I entertain a very wide range of possibilities.
I continue to wonder if the fundamentals of our economy are so supply-side inflationary that the Fed completely loses control of the stick and the economy wanders wherever it will despite grumpy interest rate edicts from the palace treasury. That would be interesting. I also entertain the notion that, despite my extreme doubts to the contrary, the Fed actually sticks the landing and gets us through this with a very soft recession. I very very much doubt that Uncle Jerome will get inflation back to 2%. But he is not stupid. I think it possible that he comes around to a ‘5% inflation is good enough for government work’ mindset, and we all adjust and get on with business in the new, higher inflation regime. And of course I will never discount the idea that Uncle Jerome or Congress or the President (or all three combined) will completely screw the pooch and blast us off into something truly awful. Lastly, we must always consider that there is likely something lurking in the foggy future whose name we do not know; something dark and sinister. Or maybe something quite lovely. I am certain only of this: one way or another, something is going to happen. I also believe that, whatever happens, owning real estate is a fairly safe bet. Maybe even the best bet.
In times like these, the Wise Investor should be nimble and quick. And watchful. Ever watchful. Because we are certainly in the midst of regime change. And as a Game of Thrones (and history) nerd, I know that regime change and power struggle is a recipe for a very entertaining series of bodies and fallen crowns. Regime change can be (bit is not always) outright chaos. But chaos can also be a ladder. As long as you don’t get your throat cut in the process.
The King is dead. Long live the King.
Coda: All the King’s Soldiers
A few weeks back, I found myself in an interesting discussion on Twitter. Some randoslid into my feed opining about ChatGPT and AI and how this new technology is a game changer for humanity. They went on about that technology’s implications for future wars. I am a sucker for esoteric discussions on the philosophy of war. So I commented somewhere along the lines that everyone thinks that new technology changes war forever, but it has not changed the fact that there is still war. Another commenter commented that I was making the Original Poster’s point - that technology changes how wars are fought. Well, yeah, sure. But my point is that We, Humans still wage war; the technology has not changed humanity. When it comes to the lurid seduction of war, Kings just can’t help themselves. Neither can the merchant when it comes to the drive for money. Nor the farmer and the desire for more land. And, of course, our bougie American middle class’s lust for Teslas and iPhones and houses. The objects of desire might change; desire itself does not.
During that exchange I thought back to being in Iraq which is now (thankfully) so long ago. There we were, a foreign army in a foreign land. Armored and armed to the teeth. Patrolling the streets of a conquered territory. Much like Alexander’s Greek hoplites. Or Genghis Khan’s Mongol horde. Or Caesar’s legions of Romans. Yes, the weapons were different. More magnificent in that terrible, deadly way that technology makes things better. But regardless of the killer gizmos and gadgets, when I boil it all down to first principles I cannot escape the conclusion that in Iraq in 2006 we were doing the same shit that we’ve been doing for thousands of years.
Regimes change. Humans don’t.
This time is different. Except where it’s not.
The King is dead. Long live the King.
“Rando” is parlance for random person.