Postcards from the florida republic
An independent and profitable state of mind.
If you need further proof that our entire system is designed to make bankers wealthier… and rip every dollar from your hand… consider this...
“Institutional investors may control 40% of U.S. single-family rental homes by 2030, according to MetLife Investment Management.”
If this figure holds, it’s game over for Millennials and Generation Z.
As they say: “You’ll own nothing and be happy.”
Institutional players like BlackRock, State Street, and Vanguard on the other hand…
Well, they’ll own everything and be happy.
And that will happen because our system all but assures that wildly skewed outcome.
Here’s how…
Regular Americans Will Be Lucky to Get the Crumbs
Over the last year – June, October, March - we experienced massive equity market selloffs. Mom and Pop got wiped out, while the whales of Wall Street came out in force to buy, buy, buy. That selloff fostered a dramatic uptick in institutional buying.
Passive investment funds – like ETFs – grew bigger. That includes the asset base of BlackRock, State Street, and Vanguard, which generates fees from ETFs and don’t give a collective damn about the short-term movements in the markets.
Now that crazy fiscal policy has turned the taps back on, a flood of liquidity has stretched valuations almost to pre-pandemic levels. Buyers continue to build positions as fiscal spending hits overdrive.
Institutions, though, are building even bigger positions. You’d better believe it.
The aforementioned BlackRock, State Street, and Vanguard - these three passive investment monsters support $11 trillion in equities. And thanks to the central banks’ never-ending cycle of pumping money into the system, they get to the trough first while everyone else is dumping their equities in fear.
Only a massive 2008- or 2020-style credit event or global contagion would create forced selling and dilution of their positions.
And even then, the BlackRocks and Vanguards of the world know the central banks will ride to their rescue (again). If they were forced to sell stocks for the short term, they’d repurchase them when the money printers start again.
In the meantime, these massive players are scooping up everything in sight. Wall Street’s biggest, most powerful institutions have the equity market on lockdown. It’s easy to envision a frightening future where ordinary investors are forced to buy their ETFs just to access some of the stocks driving global wealth.
Funny how that works…
Meet Your New Neighbor… Larry Fink
Our domestic American strain of dirigisme (don’t call any of this “capitalism”) has seen Wall Street corner the market for the assets considered essential to the so-called American dream: Owning an affordable home and a suitable start to building wealth for retirement.
These are increasingly priced out of the reach of regular Americans.
That’s because Wall Street, looking for “new worlds to conquer,” is increasingly turning its attention to the other things that matter: Food, housing, and energy.
And housing will be a big business because of the cash flow. This is the single biggest expenditure of the American family.
These institutions don’t want families building equity. They want to siphon that equity off for themselves.
That’s how you end up in this trend.
Over on Twitter, a few people are still under the popular delusion that the housing market will crash this year.
That won’t happen. It won’t happen now that a generation of people locked up in a 3% mortgage while the assumed value of their house might move underwater in recession.
It won’t happen in places like Florida, where supply remains very tight, and cash buyers from the Northeast still pay well over asking prices because they don’t have to pay 2.5x the property tax…
And it won’t happen in various areas where supplies remain incredibly tight. (Chalk that up to misregulation; 25,000 entities around the nation oversee zoning.
This is all by design.
So, when does the housing market “correct?”
When the Fed cuts interest rates (likely not happening anytime soon). This could propel sellers to consider a move as they want to upgrade, downgrade, or leave their current location.
That might produce a dramatic increase in availability…
But there won’t be a shortage of buyers. I’ll give you three guesses as to who those cash-flush buyers would be… but you only need one guess, really.
If you answered “institutional funds,” you get a prize.
And those funds will compete with Gen Z and Millennial citizens trying to buy their first home. Institutions pay with cash.
Gen Z can’t buy a home with $1,000 and a few NFTs.
Besides, any sharp drop in housing will only spur the Fed’s reckless quantitative easing (QE) programs back into overdrive.
What happens to the housing market if the Fed increases its balance sheet to $12 trillion because the Japanese don’t want U.S. bonds and the American public can’t afford them?
I’ll explain tomorrow… but it involves the relationship between mortgage-backed securities and U.S. housing prices.
Stay positive,
Garrett Baldwin
Secretary of Finance
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.