theDirt Weekly: October 22, 2022
Folks, can we get Real for a second?
Down and Dirty this week
Narratives, themes, and sorting through the garbage · Yet another interest rate discussion · The one person who knows exactly what will happen · Waiting for the other shoe to drop · Gettin’ real about real wealth
Sorting through the garbage
I try to put context into what I do in order to bring a bit of focus to my efforts. And I think in metaphors because metaphors are fun and are my playground. So one of my ‘whys’ is that I am sorting through the garbage of the news trying to find the bits that are really important for real estate. Then I write it down and record my thoughts. This gives me focus. Hopefully it gives you perspective and focus as well.
One might suppose that the news, and information generally, has undergone its own sort of hyperinflation in the internet age. The news has become worth less and in a lot of cases just plain worthless. Is Elon buying Twitter important? Nah. Is Britain’s Prime Minister versus a lettuce important? Kinda-sorta but not really in any immediately obvious and useable way. In the day and age of endless infotainment and non-stop gossip, sorting the wheat from the chaff ain’t easy. Especially since the wheat tends to be more on the boring, slightly dreary, back page bottom headline side of the news. And since every warrior with a keyboard is throwing numbers and ‘facts’ and statistics around like so much drunken party confetti, it becomes that much more difficult to get a grip on reality. As in what is really real. Signal versus noise.
Headlines this week were thin on the specifically useful side (just more bits of the same bad news to add to the growing heap) but long on themes. This week, we shall focus on the themes as I try to distill the news into a very powerful liquid that will make you go blind if you drink it and that can also be used to thin paint.
Interest rates achieving escape velocity
In one of the few actually-really important headlines from the week: interest rates continue to be wacky. As of this writing, the 10-year Treasury Note was just north of 4.2%. The rate on a standard 30-year residential mortgage was 7.3%. This continues to be bad for real estate for all the obvious reasons that I’ve already harped on. But this week I add this: interest rates should not be this newsworthy. Money and interest should be ho-hum boring drivel that moves very slowly and is in no way at all exciting. Like a referee money should be in the background. The referee is a participant in the game but in a very tangential way. The ref should never be the star of the game or be the focus of that night’s Sportscenter. The fact that money and interest have been so high on the trending topics list is a very bad sign for the real players.
In a normal, hum-drum market it should make sense that interest on short term debt is lower than interest on longer term debt. Of late, that has not been the case. Looking at the picture below, you see that interest on shorter term debt has been higher than long term debt. This is called an inverted yield curve.
Folks, inverted yield curves are like inverted teets on a cow: they indicate something unhealthy and unwanted. But keep in mind that it is not the fall that kills you but the hard landing at the end. So too it is not the inversion that kills markets but the re-inversion (reversion?) that signals all hell breaking loose. Watch the bond market closely. There are very few ‘oh-shit’ (technical term) indicators as reliable as the spread between the 2-year and 10-year treasuries. In the chart below, when the blue, squiggly line falls below the horizontal black line, that is the yield inversion. The shaded areas are recessions. Please note how the recessions really start about the time that Mr. Blue Squiggle returns north of the bold line. That’s right, kids, you read it here first: ole Mr. Blue Squiggle hopped into the car with Dirty Larry and it looks like they are both speeding north on I-35. Someone better call Trooper Jerome and tell him to keep an eye out for a maniac driving really fast toward the state line.
Waiting for the other shoe to drop
While the experts go on and on like hens in the egghouse, the rest of us are all just waiting for the other shoe to drop. What will be the straw that breaks the camel’s back? Global War? Definitely possible given the current trend. Railroad strikes? Ain’t looking good. A Fed pivot leading us all sideways? Can’t argue against it. Will the Fed keep raising rates until something breaks? Well this is what they said they were going to do, right? Does anybody really know? Like really-really? Yes, dear reader. I do. I know for sure that one way or the other something is definitely going to happen.
I also know that…
Precisely no one knows precisely what the hell is going to happen
A very important theme is that no one knows just what is going on or what to do about it. Each and every single breathing soul on this planet is in uncharted territory. The problem is that we are all looking for something to happen that is exactly the same or at least slightly familiar to what has happened before. This is, of course, dangerous because we are in our very own time with our very own circumstances. There is no guaranteed future. The future is, in fact, a range of possibles buried in the darkness of uncertainty. But all the King’s horses and men at the Fed are caught in the trap of linear thinking. Their models are looking at the world as it was. Their approximation of what is real is therefore flawed. And so I fear that the resulting decisions are a square peg in a round hole. Uh oh. Look out! Uncle Jerome is headed out to the tool shed to get the torch and the sledge muttering, “by God, that peg is gonna fit in that damned hole if it is the last thing I do!”
All of this uncertainty sure makes it hard for anyone to make an educated and informed decision. It’s even harder if you have the wrong tools and are listening to the wrong people.
Time to start thinking of assets in real terms
In our modern Culture of Exchange, we’ve become accustomed to thinking of our assets in terms of dollars. Because, of course, the almighty dollar (money) is the stick with which we measure everything. A cucumber is worth 50 cents. A new Chevy truck is worth $80 grand. A bare bones recreational property outside of Kerrville, TX is worth $15k per acre. An hour of banging wood into the shape of a house is worth about $30. In the economy of the past few decades the dollar has been steady and reliable enough to warrant such a measure. But what if, dear reader, what if the dollar, that plaything of governments trying their hardest to impose control and their will on everything in their purview, becomes an unreliable measure? In this case, the Wise Landowner would do well to begin thinking of their assets in terms outside of the dollar.
I don’t have a great answer for precisely how to do this yet because it is so far outside the realm of normal as to be considered maybe a touch, well - ahem… maybe a touch loony. Also my brain is so in the rut of measuring everything in dollars that it makes my eyes wiggle and my ears get red whenever my Dirty little mind goes down this road. That is why the concept of money as a medium of exchange (couched firmly within functioning markets serving as price discovery mechanisms) is so wonderful. The concept of the dollar greatly reduces and almost eliminates the need for the mental gymnastics of real value in terms of bushels or sheep. But an environment where politicians and bureaucrats treat money and markets as their personal playthings does not inspire great confidence. A world where billions of dollars are ‘created’ and ‘destroyed’ within a couple of day’s time and based on the whims of but a few out-of-touch technocrats seems broken. And so too in this strange reality the idea of ‘wealth’ has become all so much arbitrary paper misallocated BS running on spin cycle in the washing machine.
Assets are the realest of real wealth. And money is only a claim on assets and resources. When we boil it all down to brass tacks, money itself is an imaginary friend represented by a piece of paper or ones and zeros on a bank’s spreadsheet. But money can’t make a widget or a bushel of wheat or a beef steer. Money, folks, ain’t real.
No matter if the dollar gets weaker or stronger, if inflation increases to the moon or if we deflate down to the gates of Hell itself, a piece of land owned outright that can produce X bushels of wheat or X number of calves per year will still produce that product. And in the worst case scenario, those products can still be exchanged for things that are not dollars. A starving man with a billion dollars is poor compared to the farmer with a loaf of bread. It seems an extreme example. But it has happened before. And it can happen again. In the wars to come, you better start gettin’ real.
On that note, theDirt recommends
When Money Dies by Adam Ferguson
and
Lords of Easy Money by Christopher Leonard
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Probably-maybe also a little bit important…
What? What did I miss?
It’s a big old world out there and my sight is narrow. If there is some tidbit of news that I missed and is important to Texas and/or real estate, please let me know in the comments.
Texas Land This Week.
The following information comes from LandWatch.com. (Read Data Disclaimer1)
As of October 21, 2022 there were…
14,072 acreage properties listed as Available
.98% increase from last week
1.9% increase from last month (4 weeks)
1,064 acreage properties Under Contract
Five counties with the most listings:
Grayson County - Texoma Region (280 listings)
Edwards County - Edwards Plateau West Region (271 listings)
Hunt County - Dallas Prairie Region (238 listings)
Gillespie County - Highland Lakes Region (223 listings)
Henderson County - Piney Woods North Region (222 listings)
For the last 7 days there were…
632 properties listed or changed
11 properties marked as under contract
4 properties identified as Sold
Five counties with the most listing activity in the last 7 days:
Edwards County - Edwards Plateau West Region (39 listings)
Harris County - Houston Region (13 listings)
Anderson County - Piney Woods North Region (12 listings)
Hudspeth County - Trans Pecos Region (12 listings)
Coryell County - Blacklands North Region (12 listings)
Interest Rates (Compliments of the Mortgage News Daily app for iOS and my iPhone).
Financial Markets (compliments of the MarketWatch app for iOS and my iPhone).
Where I get my information:
An analyst’s analysis is only as good as the information they possess. As the old programming saying goes: garbage in-garbage out. The following is a list of my sources…
I follow a bunch of smart people on Twitter. A sample is represented above. I hope you’ll also follow me on Twitter:
LandWatch.com and LandsofTexas.com
MarketWatch App (market quotes and data)
FRED: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis
North Texas Real Estate Information System and Heartland Realtors
Houston Association of Realtors
The information is based on properties that are greater than 10 acres and which I refer to as ‘acreage properties’. This information is single source. Which means that this is NOT an exhaustive list of all properties available and sold everywhere in the Great State of Texas. Texas is a non-disclosure state and is therefore a Dark Market. This means that there are a great deal of data that are hidden, dispersed, not allowed to be shared publicly, or just plain unavailable. The following information is for reference and entertainment purposes only.
Dustin, thank you for including me in your list of a"bunch of smart people on Twitter". You are way too generous. I agree with your observations on the state of our money and markets. Both have become increasingly manipulated and corrupted, therefore, fake. As you stated, "Assets are the realest of real wealth." That is where I want to play. Thanks for the great article.