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This market is turning into the most intricate Rube Goldberg machine the world has ever known.
First, it's inflation running wild to get the ball rolling.
Then, JPOW and his band of Fed heads hit the dominos with rate hikes, time and time again.
Next, we see long-term bonds that the banks are holding fall over the edge of the table, causing our financial institutions to start to collapse...
Well, the next stop on our way to the payoff of a true market bottom is the real estate market.
We are starting to hear more and more people tell us about the "systematic risk" of this sector.
The reason for this is that it's an additional arm of the financial sector. Let's be honest, the people at the top of the real estate market are not using cash to get into new projects, they are leveraging their current properties to grow their empires.
This is where the crack in the foundation is the weakest...
The only thing is, we are coming out of a period of interest rates that made this tactic seem like an infinite money hack - as the kids would say.
But now, the Fed has thrown a wrench in their plans, and the chickens are coming home to roost.
In the next three years, there is $1.5 TRILLION in CRE loans that will be maturing during a period where interest rates are high.
That means that the people holding those loans are either going to need to pay up or refinance. In either scenario, they will be paying substantially more than they were in recent years.
Everybody from the owners of the empty storefronts in your local mall to the storage facility where you shove everything you can't fit in your attic.
But really, can you afford to get rid of the VHS recording of that Steelers-Ravens game from 1996?
Of course not, and you have a set price to keep that locked away, and the company knows it is getting that money.
Where it starts to get sticky for the company is when its overhead costs go up and revenue stays the same.
Heck, even the revenue for a lot of these companies is getting hit, as they carry the cost of brick-and-mortar stores when people are shopping in person less.
Or corporations that are bearing the cost of empty office buildings as employees are opting to work from home more than ever before.
The only way this gets better for the people holding the debt in these locations is if the Fed starts to cut rates - and in a hurry.
Even interest rates staying the same does nothing for this situation because they will still be refinancing at a high rate. They need a full-blown pivot.
But here's the kicker...
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.
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