Latest / TFTC: A Bitcoin Podcast / #787: Why The Housing Market Is Rigged To Fail with Melody Wright

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#787: Why The Housing Market Is Rigged To Fail with Melody Wright · TFTC: A Bitcoin Podcast

• 0:01
  Melody Wright, welcome back to the show.
• 0:03
  Marty, thank you for having me. It's my pleasure.
• 0:06
  Well, I think we've got a lot to catch up on.
• 0:11
  Last time you were on earlier this year, you made some calls, particularly around what we may see in terms of increase in foreclosures across the country in the housing market.
• 0:22
  And since then, your call seems to be pretty dead on.
• 0:26
  You have the latest stats. You just refresh them.
• 0:29
  So I'll let you talk about them. But I think a lot of what you described may come to be in the spring of this year has come true through the summer. So what has been happening in the housing market?
• 0:43
  Yeah, it was just another really disappointing spring season. So we are on now year four of a completely frozen housing market. You know, last year we had the lowest sales since 1995 and we've increased population by over 20% since then. So that's just, it's worse. It's worse than the GFC from a sales perspective.
• 1:06
  um so but also what you're now seeing and what i specifically talked about um last time is that
• 1:15
  you know we know the housing market has been frozen we got a little excited at the beginning
• 1:20
  of the year as rates were a little bit lower uh that all changed on february 28th um rates moved
• 1:27
  higher and everyone said goodbye to any sort of uh spring selling season we're running about uh
• 1:33
  just for perspective, when you look at existing and new home sales, we're running about 2% ahead
• 1:38
  of next year. I mean, I'm sorry, of last year, but then it's just not meaningful. I mean,
• 1:44
  this still looks like sort of the depths of 2007, 2008 from a sales perspective, but because
• 1:51
  you have such low sales and just a complete, we've had, you know, massive government intervention,
• 2:00
  which stopped any foreclosure sales, those home prices have just stayed high and have stayed
• 2:06
  sticky because the only people transacting are the ones that can transact, which, you know,
• 2:11
  the National Association of Realtors said in July that homes priced above a million
• 2:18
  increased 14% year over year. Your typical American can afford about a $300,000 home,
• 2:27
  And only 8% of people in the country can afford a home over a million dollars.
• 2:31
  And so, you know, that sort of pushing down of any of the default activity has just left prices kind of floating at this point.
• 2:42
  Now that's changing because, and these things in the housing market just take so incredibly long to play out.
• 2:48
  But in April of last year, they put guardrails on the loss mitigation program for FHA.
• 2:55
  that didn't go in effect till October because of the way the rules work and additional relief
• 3:02
  that borrowers could get. Those won't fully run out of room until the end of this year,
• 3:08
  but you're already starting to see people fail out of those plans, which is why I knew that we
• 3:15
  would have an increased, you know, foreclosure referral rate increase in foreclosures by June.
• 3:21
  And June is typically when you start to see default increase.
• 3:25
  You come out of the spring season where you have your bonus payouts, your tax refunds.
• 3:32
  And this year we thought tax refunds would be huge, but we did not.
• 3:36
  Typically a mortgage, you see a seasonal improvement in delinquency in the spring.
• 3:41
  We did not see that.
• 3:42
  And so it's worse, Marty, than even I thought when I was talking to you back in the early spring.
• 3:50
  And so now what's happening is you're going to start seeing those foreclosure sales.
• 3:56
  My clients are seeing the first foreclosures they've seen since 2019.
• 4:00
  That's insane.
• 4:02
  Okay.
• 4:02
  And so just for perspective, in June, foreclosure referrals, that's where you refer to an attorney
• 4:08
  for the process because attorneys handle it in all 50 states, even if it's not a judicial
• 4:14
  state.
• 4:15
  We're up 39% year over year.
• 4:18
  July just got published today. They're up 22.84% year over year. And you have foreclosure sales up
• 4:27
  14% year over year this month. Now, once those sales get registered, that's going to impact your
• 4:34
  Case Shiller. So today we got Case Shiller out. Know that that is for basically, I think
• 4:42
  that was probably June data and they use a three month moving average. And so we're not going to
• 4:50
  see what I'm seeing right now impact Case Shiller until probably Q1, just because of how delayed
• 4:57
  that series is. But so let me give you an example. A client foreclosure sale happened on July 28th.
• 5:04
  No one would have picked that up in terms of what it did you know impacting impacting a um uh home price index because that deed was not has not even been recorded uh yet probably recorded by now Um so these
• 5:22
  things are so delayed. Um, and in that one, uh, I forget the actual, it was a, oh yeah, it was over
• 5:28
  a 22% haircut, um, on that one, which is a massive price reduction. And so this is, that's a lot of
• 5:36
  mumbo jumbo to say, that it's just getting started. And we will start to see those distrust
• 5:42
  sales impact the national price indices probably by either very end of the year or beginning of
• 5:50
  next year. So for right now, you know, everybody thinks unless you're in some like California in
• 5:56
  the West or the South, that home prices are doing okay, but they're not. There's even places in the
• 6:02
  Northeast, you know, places like Boston where you're about to see some real, real issues. So
• 6:09
  we're, you know, for the places that have already been hit, it's just continuing to kind of degrade
• 6:16
  for the places that have not in the Northeast, some in the Midwest, you're starting to see cities
• 6:22
  kind of light up in those areas. And we will see sort of a more holistic, probably turning of those
• 6:31
  areas at the end of the year. So there's a ton of lag effect. Oh gosh. Yeah. It's insane actually
• 6:38
  how lagged it really is. And you were saying before we hit record that your client's numbers
• 6:46
  typically align very well with the national numbers that eventually get reported and you're
• 6:53
  obviously following it throughout the month as it's developing in August is no better than July,
• 6:57
  that correct it's it's so much worse and so i'm even scared to say what i saw in client books like
• 7:05
  you were saying they typically do uh kind of mirror what we see out there i i couldn't actually
• 7:12
  believe what i saw marty when i cracked open these numbers and i saw from basically in august
• 7:19
  so and we still haven't ended the month yet sitting today i saw foreclosure starts go up
• 7:26
  150% month over month. That is not something you ever see in the default world. And, but they did
• 7:37
  it to themselves with all of those programs. I mean, Marty, it's really like, uh, it's just been,
• 7:44
  you know, everything's been held behind this dam, you know, and they knew it and they, and in a way,
• 7:50
  everybody knows now that like it is over. It's almost like a scheduled, okay, it's done. And
• 7:58
  all of this is starting to come over the top. And for FHA, there's nothing they can really do.
• 8:06
  And really for the other thing that I saw last month and actually in July was I saw new early
• 8:13
  Fannie and Freddie delinquency. That is supposed to be higher credit quality. And I had seen that
• 8:19
  through the spring, but I materially saw an increase in June for what you consider the prime
• 8:26
  cohort. And this is something I've long warned about. We could actually see FHA is around,
• 8:32
  it goes, it wobbles back and forth, but it's somewhere around 12% delinquent right now, which is,
• 8:38
  it's hard for someone like me to say that and no one else pay attention. That's massive.
• 8:43
  Um, but Fannie and Freddie have looked great, like barely, not even a percentage of delinquency,
• 8:51
  but now we're getting to the point where they're, they're going to start, but FHA may have reached
• 8:57
  its own peak, believe it or not for right now, because it has just been so bad for so long.
• 9:04
  We saw stress there starting back in June of 2023.
• 9:08
  And so let's dive into the process of how, I mean, really leaning into the idea of like the lagging effect that exists in this market and going from a foreclosure referral to a foreclosure sale.
• 9:24
  How long did the process take and what's happening?
• 9:27
  And obviously, as that's happening, I have to imagine people are seeing it happening and therefore beginning to cut prices.
• 9:33
  Yeah.
• 9:34
  So it can take it takes a lot longer than it used to, Marnie, after, you know, the GFC.
• 9:40
  And there are certain states where it goes fast, like Georgia and Texas.
• 9:43
  But if you're in a judicial process, it could take.
• 9:47
  This gives you some perspective.
• 9:49
  I'm helping someone with a foreclosure they inherited from their father from 2007.
• 9:55
  Oh, 2007 in New York.
• 9:57
  Now, New York is its own special, special, special case.
• 10:00
  If you're in somewhere like Georgia and Texas, it can go in 60 days after, but you have to wait.
• 10:06
  So let's say you go delinquent.
• 10:09
  Okay.
• 10:10
  The servicer can't do anything, but they have to advance your payment to, you know, to Fannie, Freddie, FHA, so they can pay the bondholders.
• 10:19
  They have to wait until you go 120 days delinquent And they have to get in touch with you And if they can then they typically have to do other things
• 10:30
  Then they refer it to foreclosure.
• 10:32
  If you're in a judicial state, well, let's start with non-judicial,
• 10:35
  somewhere like Georgia and Texas, which is typically 60 days timeline.
• 10:40
  It gets the attorney.
• 10:41
  They have to run title.
• 10:42
  They have to do something called publication or they publish it in a newspaper.
• 10:45
  and then in Georgia and Texas, you only do foreclosures on one Tuesday every month.
• 10:52
  It's called Super Tuesday and they go and they auction them on that Tuesday.
• 10:57
  So in that scenario, we also have to take into account that probably the borrower is calling in,
• 11:03
  asking for some loss mitigation option. If they're asking for that, then the clock stops completely.
• 11:10
  you know, nothing else can happen until they fail out of that. So let's just say it's an investor
• 11:17
  that walked away and, you know, I'm already hearing that. I'm already seeing that. Then
• 11:22
  we'll tell you that timeline. Okay. Probably around 120. Then you've got servicer delays
• 11:29
  because I'm already seeing them get really backed up. Let's say on a good day that got
• 11:36
  preferred around day 150. So, you know, basically are even like 180. Then let's say you're in Texas
• 11:45
  and Georgia, that's another 60 days. So that's 240 days so far, then you have to do the process.
• 11:53
  And, and, and, and so you're, you're talking at almost, you know, six to nine months in like the
• 11:58
  best situation. It's never the best situation. I have one client foreclosure right now. Literally
• 12:06
  he has been in foreclosure for four years because it's a VA loan and they had a moratorium,
• 12:15
  which we'll probably see some of that again, I guarantee you, once this gets bad enough.
• 12:19
  But in a judicial state, this could take a very long time and at least usually a year.
• 12:28
  And so if I'm one of these FHA borrowers, just to give you an idea, who
• 12:32
  suddenly those new guidelines were put on in October. I went in November and tried my usual
• 12:40
  game of, hey, I didn't make three payments. They said, no problem. You can get a partial claim,
• 12:45
  but guess something's new. Now you have to do trial payments. And the borrower was like, oh,
• 12:51
  okay. And so they try to make that first trial, but they can't really make the trial because,
• 12:55
  Marty, those trial payments were not required before with this crazy program they did to kind
• 13:01
  to get us through the election year. And so then that servicer has to wait for you to completely
• 13:08
  fill out. They wait three months. Then they try to get you into some other thing. And they'll say,
• 13:16
  okay, you can do a forbearance, but you have to call in every single month, but you can get it
• 13:21
  for up to 12 months. So let's say like last October, and let's say I hadn't used my forbearance
• 13:28
  and I failed out around January, then I could have a full year still left. But what you're seeing
• 13:38
  are the people that are out of all their options. So the timelines are drastically different across
• 13:45
  the country. But let me tell you, the states that are non-judicial are California, Texas,
• 13:50
  Georgia, like your big housing market states. Florida is a judicial state. However, they
• 13:57
  just changed their laws not that long ago to move that process along. Typically in Florida,
• 14:03
  you could see three to five year delay on a foreclosure, but they've recently updated that.
• 14:08
  So I know it's so confusing, but that's how confusing it really is. And in any time,
• 14:13
  if that borrower wants a loss mitigation, they can put the process on hold. When I stopped
• 14:20
  managing default, and I guarantee you somebody's going to ask my help here. I could have told you
• 14:28
  how to delay a foreclosure in every single state, what action to take, and how to get around it,
• 14:36
  to be honest, at that point in time. And so you see all kinds of what we call strategic defaults.
• 14:43
  People will file bankruptcy. And so this stuff just drags on and on and on. But for somebody in
• 14:48
  Tennessee, they are going to start to see, for instance, they will start seeing this faster than,
• 14:55
  say, other states because they are also non-judicial. And that foreclosure I was telling
• 15:00
  you about that I did the example on was in Tennessee as well. So they will start seeing
• 15:06
  these things. And they're already seeing them on the listing sites, Marty, when they go to Zillow
• 15:11
  and Redfin. So anybody that's paying attention is going to start noticing those more and more
• 15:18
  when they're looking out at those markets. And so it will impact those estimates as well.
• 15:26
  How do the discounts work at auction and who's taking that loss?
• 15:31
  It so who taking well the FHA and so the agencies are taking so everybody loses Marnie And this is why nobody wants foreclosures And so this is going to this might actually blow your mind how this works
• 15:46
  So if you the last cycle we had, it was more about private lenders, right?
• 15:54
  Private lenders getting over their skis, et cetera.
• 15:57
  Not government necessarily, although they joined the party.
• 16:00
  Um, and so there were all these different, I remember, uh, sitting next to my foreclosure,
• 16:06
  it's called your bid team.
• 16:08
  And they are the ones that prepare the bidding instructions for what your representative is
• 16:14
  going to bid at auction.
• 16:16
  And they, and there was like, like all these workbooks for each investor with all these
• 16:22
  different things that you had to consider to come up with that final bid.
• 16:26
  Okay.
• 16:27
  that you're going to make at the auction because a lot of times you're going to bid total debt
• 16:32
  because you're hoping to recoup at least that.
• 16:38
  Well, what the agencies all learned last time is that nobody wants these things.
• 16:44
  They're too difficult to manage because you have to take care of the property while it's sitting
• 16:49
  there. Once you get it into a real estate owned portfolio, it's just too expensive. So now what
• 16:55
  you have are the agencies with designated haircuts for each state. You might get a different one
• 17:03
  depending on if it's in an MSA or metropolitan statistical area or not, but these are just
• 17:10
  across the board. And so for instance, this property I was just talking about in Tennessee,
• 17:15
  they got what's called an interior appraisal and the haircut for that was 30% going out the gate
• 17:23
  from the appraisal they got. Now the appraisal they got at, cause you have to get an appraisal
• 17:28
  before you go for a closure sale was already 10% lower than the Zestimate already before anything
• 17:35
  had happened. Because this is what Zestimate doesn't know if you haven't replaced your roof.
• 17:40
  Zestimate doesn't know that you've got mold in the basement. I mean, Zestimate doesn't take any
• 17:46
  of that into consideration. And so, so that thing, that sucker went for a basically 70,000 less,
• 17:54
  I believe, than what it last sold for. And so that's insane. And you start seeing that at scale,
• 18:02
  because especially in these new builds, the builders really, really heavily relied on FHA.
• 18:08
  And so, man, you are just going to get crucified in these areas where you have clusters of FHA
• 18:15
  borrowers who are underwater.
• 18:17
  Aren't structurally sound
• 18:19
  in a lot of ways. Oh gosh, no.
• 18:21
  No. No.
• 18:23
  I mean, they're terrible.
• 18:24
  They're not built well.
• 18:26
  I mean, I've been to these sites.
• 18:28
  I've seen the liquor bottles and the
• 18:31
  beer cans and
• 18:32
  just the trash.
• 18:34
  And just, I mean, the state
• 18:36
  of these sites is, oh,
• 18:38
  it's something else.
• 18:42
  And
• 18:42
  so while all this is going on,
• 18:45
  You also have the situation with United Wholesale Mortgage, where they made a massive derivatives bet that went sideways and they just had to post a massive loss and their dividends.
• 18:57
  And I'm pretty sure it's putting the owner of the Phoenix Suns at risk of his ownership stake in that franchise right now as well.
• 19:05
  Yeah, they're going to be bankrupt soon.
• 19:07
  I mean, had they not gotten that, you know, balance sheet fortification deal from Oak
• 19:15
  Tree, it would have been game over, like game over.
• 19:19
  Like, I'm pretty sure they're having calls right now about breaching covenants on their
• 19:24
  lending facility.
• 19:25
  And they've got $3 billion in maturities for their lending facilities coming up this year.
• 19:31
  You know, those are going to be very, and they're already at a negative cost of funds.
• 19:35
  And I mean, Marty, the only reason you get in this business is to have a positive cost of funds, like meaning you're making more interest income than you're paying an expense.
• 19:46
  And these guys, oh, no, like I don't even I mean, Marty.
• 19:49
  So I guess I can say this now because I reached out to their investor relations to talk to me about their cash flow statement because I worked in financial planning in and out.
• 19:59
  I signed off on the financials of my former company, you know, and I could not make heads
• 20:06
  or tail of their cashflow statement. I called someone that I knew from treasury, my former
• 20:11
  company, they could not either. And so I emailed investor relations and I was like, I really need
• 20:16
  to talk to somebody about this and explain this to me. And I got the typical, you know,
• 20:23
  go to our investor relations webpage. But I mean, this looks like a money laundering operation,
• 20:28
  Marty. I mean, it is, it's the only thing that makes sense to me. I can't make, I don't, I can't
• 20:35
  even, I, they are not thinking now everyone in the industry has made fun of them for years. I mean,
• 20:41
  years, like we're all like, you're, you're crazy, but this is altogether different. And it feels as if somebody saw
• 20:50
  that the game was almost up.
• 20:52
  That's what it feels like.
• 20:54
  Because this train started,
• 20:56
  I mean, they had one positive quarter
• 20:58
  of gain on sale after they IPO'd,
• 21:01
  and that was in, I think, late 20, early 21.
• 21:05
  It's now 2026.
• 21:06
  I mean, this should have been gone a long time ago.
• 21:12
  They were basically riding the Zerp wave, right?
• 21:14
  Depending on low cost of capital
• 21:17
  and interest rates going up completely borked them.
• 21:20
  it's sorry. Oh yeah. Yeah. I mean,
• 21:23
  but also they had no idea what they were doing in mortgage and they just went for the,
• 21:29
  like, let's get as many people in the door as possible. You know, that's, that's really
• 21:36
  what that, what they did. Well, did they get an amount of people in the door that would make them
• 21:41
  systemically important to the system or is this more of a major risk?
• 21:48
  I think there's probably a Jamie Dimon type character just kind of setting off to the side, waiting and salivating.
• 21:57
  Now that those capital, you know, we've had a relaxation of capital controls to some degree.
• 22:04
  Once we get in crisis, we'll have more.
• 22:07
  And I think probably Chase is just waiting to take those assets, honestly.
• 22:11
  So how the balls of motion, bodies are beginning to.
• 22:16
  rise to the surface of the sea.
• 22:22
  How long does this whole process take to play out?
• 22:25
  How quickly do housing prices come down?
• 22:28
  I mean, and also considering the backdrop of what Scott Pescent and the Treasury are doing
• 22:34
  and what they're focused on geopolitical international trade and war endeavors,
• 22:42
  It seems like it could be a hiccup for them while they're trying to navigate some pretty precarious waters on the geopolitical side.
• 22:51
  Oh, yeah. Yeah. So that, you know, timing is always hard.
• 22:55
  But I will tell you that I went to sleep on United Wholesale because the timing question was such a question.
• 23:02
  I'm not asleep anymore. It is now time to start looking at those companies again.
• 23:08
  And so, you know, we need a catalyst because there is nothing holding the housing market up except for our top, you know, 1% and narrative.
• 23:21
  And that's it.
• 23:23
  And so we need some sort of catalyst to really to get those rage delisters to understand they have like you better sell now or you're losing the opportunity for the next 10 years, honestly.
• 23:36
  And this is a signal for you, Marty. I just rooted this out before we got on that the Mortgage Bankers Association, after harassing me, not them specifically, but the industry, calling me crazy for years, has just come out and said, you know, maybe it's time we stop thinking about the housing market being undersupplied.
• 24:01
  maybe it's time to start thinking about demographics, which, you know, has been what
• 24:05
  I've been saying for some time. And so I think the time is getting nearer. I think that, I think
• 24:13
  we're probably going to get some sort of blow up in the fall, be it private credit, be it commercial
• 24:18
  real estate, be, I mean, choose your, be it AI, who knows. But once we have some sort of blow up
• 24:25
  or we just keep marching down the foreclosure path,
• 24:30
  then you're going to start to see the national narrative change.
• 24:34
  And so let's say we don't have any kind of blowout.
• 24:38
  I'd say by Q1 of next year, the national numbers will turn.
• 24:44
  If we do, that's where things get interesting.
• 24:48
  How fast could it happen?
• 24:50
  It depends on how aware and how quickly people,
• 24:54
  Because social media meant, you know, one of the reasons why we saw such a rapid increase in home prices was because we had all these speculators going out there trying to buy a home for passive income.
• 25:07
  And look how quickly that went up in a span of two years, very different from the last cycle.
• 25:13
  So we could be looking at, you know, a similar time frame on that initial drop.
• 25:20
  But again, I think we're going to see a situation where it's going to take years to bottom out just because of how much speculation is out there and how much confusion is out there on kind of our demographics and our current migration habits, which is not moving to the Northeast.
• 25:41
  And they are just completely illusional, you know, about what's happening there.
• 25:46
  Um, so yeah, it, it's, it's hard to say, but I will say this, we are closer.
• 25:51
  We are and things are really starting to uh kind of to tell me that we gonna we gonna see a real change in narrative by the end of the year And how do things break down when you separate multifamily office commercial real estate
• 26:08
  residential, family? I spent the spring and summer looking at multifamily
• 26:18
  securitizations, agency securitizations, and getting angrier and angrier and angrier
• 26:27
  because let me tell you where we have a 2008 style situation.
• 26:32
  It's in multifamily because they typically do these interest only loans for five years,
• 26:40
  10 years.
• 26:43
  And oh, gosh, I really could talk 10 hours about this.
• 26:48
  But what happened during this last COVID boom is, you know, all these YouTube influencers
• 26:53
  were saying, go buy your crappy multifamily Class B building, put in a swing set and a new
• 27:02
  garbage can or whatever, raise rent, and you're going to become a millionaire. And this is, I mean,
• 27:09
  so many people bought into this and this idea of value add to these old multifamily properties.
• 27:17
  They didn't realize that brand new, all the brand new multifamily construction is out there.
• 27:23
  And so I think multifamily, from what I've been seeing, is going to be a spectacular blow up.
• 27:31
  And there are 2.3 trillion of the outstanding debt.
• 27:36
  I cannot get a good number on office what that really is, but it has to be actually lower because total commercial real estate debt is around 5 trillion.
• 27:46
  And so we're not even yet if if multifamily is 2.3 that we know of, then you've still got retail.
• 27:55
  You still got industrial, which includes the data centers.
• 27:59
  We know some pretty big debt out there on those.
• 28:03
  And so then you have office.
• 28:05
  And I think, you know, now that we're kind of here, like office, yeah, it's going to be terrible, but not as systemically bad as multifamily.
• 28:17
  And this stuff is just blowing up everywhere, Marty.
• 28:20
  I mean, and, you know, big, big, big people who are making big, big bucks.
• 28:25
  And so this isn't some piddly, you know, $325,000 mortgage.
• 28:31
  I just recently wrote about a $50 million mortgage and that money has disappeared.
• 28:37
  I mean, disappeared.
• 28:38
  And so the agencies, everybody always says, oh, you know, they have the insurance funds
• 28:43
  and they have this.
• 28:45
  Yeah, they don't have enough for what I'm seeing in multifamily.
• 28:49
  And by the way, Fannie and Freddie, I mean, it's these.
• 28:52
  And so I find it interesting that the executives that just left Fannie Mae were multifamily
• 29:00
  And also people that work on this thing called low income housing tax credits, which is a real big scheme that all these developers have been using.
• 29:11
  And so fascinating. It was that department. I've got somebody from within, like a whistleblower type I'm going to be talking to in the next few days to get a better sense of what's happened there.
• 29:25
  but something like you can,
• 29:27
  I can't even believe what I'm seeing in these securitizations.
• 29:32
  And I can't, half the time I can't get the offering docs,
• 29:35
  the offering documents because only private investors can get those.
• 29:40
  And so I can only give you part of the picture,
• 29:42
  but the picture is so, so, so bad.
• 29:46
  It's so bad.
• 29:48
  It's really bad.
• 29:49
  In order to 08 where they're being tranched and given higher ratings than they deserve.
• 29:53
  Yeah.
• 29:53
  Yeah. Oh, yeah. Well, well, this one that I'm telling like I'm going to be doing some open records requests on this because I think something criminal happened here.
• 30:03
  But this one got stuffed into a Freddie Mac securitization, a credit risk transfer when it was delinquent.
• 30:10
  That should never happen. There was no I did see that offering document.
• 30:14
  There was no disclosure that that thing was already delinquent.
• 30:17
  And so I'm like all kinds of shenanigans have been going on.
• 30:23
  And it looks like a lot of it has been going on in multifamily, kind of 2008 style.
• 30:30
  Not as much as single family.
• 30:33
  You had the government, FHA, do the subprime lending.
• 30:38
  But multifamily looks very 2008-ish.
• 30:43
  Will we ever learn?
• 30:45
  I don't know.
• 30:46
  He's making these decisions.
• 30:48
  And is it credit funds backing them?
• 30:50
  Like, hey, we need to have this mark to market.
• 30:53
  so we can go like marked, not marked to market,
• 30:56
  like marked at what we market at.
• 30:59
  Mark to model.
• 31:00
  Mark to model.
• 31:02
  Yeah.
• 31:02
  We need to mark to model something to raise another fund
• 31:04
  and try to plug the holes with that cash
• 31:06
  or something like that going on or.
• 31:08
  Oh yeah.
• 31:08
  Oh yeah.
• 31:09
  Oh yeah Oh yeah I mean in the builders too I mean one of the reasons like if they don sell a certain percentage or they take a certain percentage loss on a subdivision let say they have to do a 10 haircut then they have to revalue the whole subdivision
• 31:25
  they'd rather just not sell than do that because then that impacts their lending facilities and all
• 31:32
  of no one wants to mark to market. I mean, no one, no one. And all the banks, you know, after 23,
• 31:39
  everybody got a phone call that said, you modify these people or else. And everybody did. And
• 31:46
  private credit got in last year and helped refinance a lot. Well, they don't have the money
• 31:52
  this year. They're, you know, fighting for life. So you've got a situation where you have what's
• 31:58
  called a hard debt maturity wall. There's no more extension options. And you've also seen a big
• 32:03
  credit provider step back. But the will we ever learn? Well, I have a lot of thoughts on that,
• 32:09
  but I got to tell you, a lot of my anger is because I do know who's sitting in finance at
• 32:16
  one of these agencies and that person should know better. And yes, it's a big agency and yes,
• 32:24
  you know, things it's, you know, there's a lot of bureaucracy and things like that, but man,
• 32:29
  am I mad? I mean, I'm really mad. And I, and I talked to my former colleagues, we're all mad.
• 32:35
  We're all really mad because we went through hell. So this would never happen again.
• 32:39
  And so to see this crap, it just, it makes you really angry.
• 32:43
  What would have been the right thing to do with all this?
• 32:47
  Oh my gosh.
• 32:49
  Because the problem in 08, the problem was just like mask it, mask it, mask it, make
• 32:53
  sure the rating agencies put AAA on it.
• 32:58
  They stuff everything together and you're basically inflating a bubble, right?
• 33:02
  That's going to lead to a massive crash, a crash that if you had acted earlier, would
• 33:09
  not be as impactful as it ultimately was. And it seems like we're doing the same thing again
• 33:14
  in different parts of the market. And it's, to me, it feels very political. And, you know,
• 33:21
  because it was the government that did this. I mean, they, so they, so I got, I was so excited
• 33:28
  in like 21, I think it was when the agencies came out and said, we're capping investor purchases
• 33:37
  to 7%, meaning like what you're selling them, they're saying, okay, we're only taking X percent
• 33:45
  of actual investor purchases into our securitizations. They only did that for like a
• 33:52
  year and a half. And then it was just like every foot went off the brake. And in 21,
• 33:58
  they quietly removed and on the single family side, the debt to income threshold from Dodd-Frank
• 34:03
  and everybody was off to the races.
• 34:07
  So had they actually continued with that action, number one.
• 34:12
  So one, for FHA, they could have cracked down on owner occupancy fraud.
• 34:17
  That would have been huge, huge.
• 34:20
  Had they done that in 21, we would not be where we are today.
• 34:24
  Because what does that look like?
• 34:27
  So for that one, verifying that the person taking out the loan is going to live in that home for a year.
• 34:37
  And then, I mean, what you could do is enforcement through, you know, making them mail in some sort of proof or even as cheap as drive-by inspections are now, you could even do that every six months, something like that.
• 34:53
  Um, but, but what that would have done is you had investors come in, use these, uh, to, to buy,
• 35:01
  um, short-term rentals. And so they're, you know, you can go as low as a low 500s on your credit
• 35:09
  score, uh, three and a half percent down payment, you know, and so it's very low skin in the game,
• 35:16
  but had they really enforced owner occupancy, that would have slowed all of that down. And
• 35:22
  the Philly Fed study that came out in 23 that said, you know what, the investors never left the
• 35:29
  housing market. They have been all in since the last crash. And in fact, where they are involved,
• 35:35
  you see fraud about 25% of the time. So they knew, they knew how bad the FHA program was being used.
• 35:44
  They didn't do anything about it. Now, the very simple thing that Fannie and Freddie could have
• 35:48
  done, including putting, you know, restrictions on investment properties and second homes,
• 35:54
  is they could have lowered their conforming loan limits. So this is the limit of what a person can
• 36:02
  borrow. And so, you know, the median income in the United States is around $84,000, $85,000.
• 36:11
  What that salary could afford, if they had a down payment and hardly any other debt would be about
• 36:18
  a home Okay That your median buyer Do you know what those loan limits are today Marnie No Over And that not in California That in Johnson City Tennessee where the median household median income about
• 36:36
  $60,000. Okay. In California, I think it goes as high as to one three, one five, 1.5 million.
• 36:46
  So had we just said, you know what, we're going to use those loan limits and we're going to tie
• 36:52
  them to median income, max three times your median income, because that's typically what
• 36:58
  would somebody a house can afford, a household can afford, then they would have stopped it all
• 37:04
  back then too. But no, everybody was just having too much fun. And then, then when, you know,
• 37:11
  the party really stopped in 2022, it was, how can we get the last borrower in? And I, you know,
• 37:17
  after watching everybody be still skittish about what's called non-qualified mortgage lending,
• 37:25
  which is it's not an agency product. 85% of mortgages are typically agency backed.
• 37:35
  All of a sudden people light rocket are saying we're going into non-qualified lending. Okay.
• 37:42
  Like this is the absolute worst time to do it.
• 37:46
  But they went in crazy to FHA too.
• 37:50
  In my last sub stack, I give the percentages, but unbelievable FHA growth since Q4 of 25,
• 37:59
  mainly refis at United Wholesale.
• 38:02
  So, and oh, you asked me about the losses.
• 38:05
  Sorry.
• 38:06
  So sure, it's the agencies that lose, but so do these non-banks because they never get
• 38:11
  fully paid their claims out ever, but most of them weren't around during the last crisis. So they just
• 38:16
  think they're going to get paid. They're not, they're not going to get paid. And it's not even
• 38:21
  because the agencies run out of money. They figure out how not to pay them. That's part of their game.
• 38:26
  And so you'll have somebody like Chase say, well, we don't, we don't actually report non-performing
• 38:33
  FHA because we know we're backed by the full faith and credit of the government. Well, Chase
• 38:37
  also knows they're not ever going to be paid back 100%. And in fact, that's why they keep their FHA
• 38:43
  book low. But yeah, there's all kinds of accounting shenanigans. But you know, and then ultimately,
• 38:48
  who's going to pay the taxpayer, you know, once it gets bad enough. But yeah, good times.
• 38:55
  I mean, you mentioned they temporarily set the investment property limit at 7%.
• 39:01
  percent what is that pulling up do we do we know how much oh no there's no there's no threshold
• 39:08
  anymore but do we know what the percentage is of their outstanding book i i don't currently know
• 39:15
  those numbers but you also have to know that a lot of your primary mortgages were actually for
• 39:22
  investment properties too but yeah i i can't remember what it is right now it's higher than
• 39:28
  seven. Yeah. Yeah. Yeah. Yeah. So.
• 39:39
  And seven wasn't a magical number or anything. I was just excited to see them do anything.
• 39:45
  You know, so. Well, this is the question, because I mean, we've been talking about this for
• 39:50
  any better part of a year now. Housing is obviously unaffordable for most Americans.
• 39:54
  And so that's the reset that we need to make housing more affordable.
• 39:59
  And again, we just talked about who's going to suffer the losses.
• 40:03
  And I think the American public could get on board with that.
• 40:07
  Like, hey, you guys took all the risk, eat the losses.
• 40:11
  Just let the market find what the true clearing price of this real estate is so that young Americans and even older Americans can step in and buy these assets much cheaper.
• 40:23
  You think that plays out or is it save this market at all costs again?
• 40:28
  If it was save it at all costs, the administration would not have put the lockdown on that FHA program.
• 40:35
  And so I I watch what they do, not what they say.
• 40:41
  And every action they've taken has been to let this play out.
• 40:47
  Now, things may change. Right.
• 40:49
  But that road to housing bill was like so dumb, like so dumb.
• 40:53
  I mean, it's so dumb.
• 40:55
  And maybe it gives a little bit of help to like manufactured housing down the road, maybe.
• 41:03
  But it was it was a nothing bill.
• 41:04
  And so everything they my favorite, sorry, just makes me laugh because they just keep backing themselves into every corner, like just watching them, you know.
• 41:14
  So remember when they announced, my life went, whenever he announced that stupid 50-year mortgage
• 41:21
  and then all the, my life was madness for the longest time. But when they announced buying
• 41:27
  mortgage-backed securities, Fannie and Freddie, just, I started laughing like really hard. And
• 41:33
  because that's basically the snake eating itself. But then my favorite part about that, well,
• 41:38
  they'd already been doing it.
• 41:39
  by the time he announced it, they had started in May of last year.
• 41:43
  It had already had an impact on rates.
• 41:45
  He announces it.
• 41:47
  Rates start shooting up again.
• 41:49
  And then Fannie and Freddie has to come out and say,
• 41:52
  hey, well, we can't really buy those mortgage-backed securities
• 41:56
  because if we do, our hedging strategies put pressure on the 10-year
• 42:02
  and send rates up.
• 42:05
  So you can see Basant right now.
• 42:09
  You can see them all like they're trying everything.
• 42:11
  They're throwing everything.
• 42:12
  Let me write a little sticky note.
• 42:13
  No, let me buy something.
• 42:15
  I mean, whatever.
• 42:16
  And let a reporter take a picture of it.
• 42:18
  I mean, they are doing everything they possibly can, but they are just out of options on a lot of this stuff.
• 42:25
  And you can't break this.
• 42:26
  If you break the securitization market, talk about all hell breaking loose.
• 42:32
  And it is such a large, large market.
• 42:36
  How does this affect HELOCs?
• 42:37
  Like are HELOCs mark to market or?
• 42:40
  Well, they should be.
• 42:42
  I mean, there's not as many of them in securitizations.
• 42:48
  Although that's probably starting to change right now.
• 42:53
  But believe it or not, as late as the Mortgage Bankers Association Conference of 2022,
• 43:03
  I was talking to a HELOC lender.
• 43:05
  He was private, you know, like private guy, private credit guy.
• 43:09
  And he's like, I can't get anyone to talk to me.
• 43:12
  And I said, listen, buddy, most of us in this room remember what we sold our HELOCs for.
• 43:19
  At GMAC, we sold them for 10 cents on the dollar, you know.
• 43:22
  So like everyone here is not going to listen to you, but that has radically changed even in the past, you know, four years.
• 43:30
  And so, but yeah, they are securitized.
• 43:33
  that there's just not as many of them as say like the primary market.
• 43:39
  Yeah, I'm just trying to get a sense.
• 43:40
  I'm just thinking about obviously, like you said earlier,
• 43:44
  the only sector of the economic ladder buying homes right now
• 43:50
  is the top 10, top 5, top 1%.
• 43:53
  I'm just thinking if there's like a cascading effect
• 43:55
  if like they're using their first home as collateral for something
• 43:59
  and they have a second home, like what is the cascade there?
• 44:02
  Yeah. I mean, that it's way worse than even that, though. Like, so, yeah, I kind of I did a lot of that at the beginning, Marty, like, OK, what you know, what's good.
• 44:15
  Then you just realize the things that are happening are so much worse than that than what happened before it.
• 44:21
  Like, so my favorite is what the investor bros will do when they they'll pretend to sell homes to each other.
• 44:30
  Let's say I'm out in Scottsdale, Arizona.
• 44:33
  You have a property.
• 44:36
  You're going to pretend sell it to me.
• 44:38
  We'll do a deed of sale on public record.
• 44:42
  Pretend that you sold your house that sold for $800,000 a year ago.
• 44:48
  Pretend you sold it to me for $1.7 million.
• 44:52
  I pretend to give you a check, but I mean, I don't really.
• 44:55
  I then go to the bank and take out a mortgage on that new price adjustment, that 1.7 million when
• 45:07
  it had previously sold for 800. I then take the cash out of that and I go buy another house.
• 45:14
  Okay. And this just keeps. And so I have now seen real money printing all over the place
• 45:22
  with people pulling these kinds of shenanigans.
• 45:25
  And so...
• 45:26
  Taking advantage of 1031 along the way.
• 45:28
  Yeah, of course.
• 45:30
  And there's some guru that's going to teach you how to do it.
• 45:32
  I mean, there's so many shenanigans out there.
• 45:37
  Like the old...
• 45:38
  Like everything we were taught to look for in the last cycle,
• 45:41
  it doesn't matter as much this cycle.
• 45:44
  The arms don't matter as much.
• 45:48
  The helix.
• 45:50
  because when we did those cash hours, this is something that drives me insane when the housing
• 45:56
  analysts like, and I don't like to say names, but there is one, they got the call right from the last
• 46:02
  cycle because of who was writing for them. Certainly not the person that writes for them now.
• 46:07
  And literally this person will send an email every month and saying, you know, the house ATM
• 46:12
  is closed and has been closed since 2012, whatever. I mean, way back then, but here's the thing.
• 46:19
  it was the house ATM in 2020. The only reason it doesn't look like they pulled all of their equity
• 46:27
  out is because home prices went up, but they did pull all their equity out. And what these,
• 46:32
  what we call cash out refinances, they all took cash out and spent it. And when home prices do
• 46:40
  correct it you everybody going to realize that the ATM that was housing is what fueled kind of pandemic error spending you know post 2020 That along with PPP ERC and all the other things the government did But yeah so the HELACs too late They not that big of a deal Yeah
• 47:03
  it's still going to suck for a lot of people, anybody getting one right now. I'm already hearing
• 47:08
  of lines being frozen and things like that. I'm hearing of credit card lines being frozen. So,
• 47:13
  So, I mean, but yeah, they're not the systemic.
• 47:17
  What's really systemic and the hardest to sort of quantify is the fraud.
• 47:24
  And I mean, I'm just seeing it.
• 47:25
  Like, I'm telling you, this multifamily property I was talking about,
• 47:29
  50 million printed out thin air and gone.
• 47:32
  Where is it?
• 47:33
  You know, like, it's just, and so just, that's just one.
• 47:37
  Probably spent on private jets to Cabo or something like that.
• 47:39
  What'd you say?
• 47:40
  Probably spent on private jets to Cabo or something.
• 47:43
  Oh, well, yeah.
• 47:43
  They always, it's always with these guys.
• 47:47
  Not buying hard assets that can be, uh, can be confiscated in a foreclosure.
• 47:51
  No, no.
• 47:53
  Yeah.
• 47:53
  It's, and, and that's what I try to tell people because we still have so much FOMO.
• 47:57
  Um, and it's like, just wait, they're going to come get that boat.
• 48:02
  Just wait.
• 48:04
  One day you're going to see the repo guides and because everybody is living large on leverage,
• 48:10
  you know?
• 48:10
  And it's just like what we're seeing. I don't know if you caught the I can't remember if it was Rod Davidsky.
• 48:17
  I can't remember who's really tearing apart. I think so.
• 48:21
  Yeah. Him and Nick Nemeth are tearing apart kind of this Mark Walters stuff, Guggenheim.
• 48:26
  And I mean. This stuff is crazy.
• 48:30
  And the fact that one of the related insurance companies owns the TV rights, the Dodgers is mind blowing to me.
• 48:37
  well then and i just saw lebron james got a 300 million dollar loan from one of the insurers
• 48:42
  i just literally right before we hopped on somebody sent me that and i'm just like okay guys i mean
• 48:49
  we don't have raincoats thick enough for what's coming i mean it's going to be
• 48:57
  epic well i talk talk about learning a lesson maybe that's why we didn't learn the lesson
• 49:03
  from 2008 because nobody went to jail. Do you think the fraud is at a level where many people
• 49:09
  need to go to prison? Oh gosh. Yeah. But I mean, but we're going to be the ones that have to make
• 49:16
  it happen. If we sit back again, like, but I don't think we will. I think we're nearing a hundred
• 49:21
  year cycle really, um, you know, with where we are. And, but yeah, so many of these, I mean,
• 49:27
  it's all the same people,
• 49:28
  Marnie.
• 49:29
  It's always all the same people doing the same stuff just at a larger scale.
• 49:35
  Well,
• 49:35
  I mean,
• 49:36
  it's,
• 49:36
  it's endemic throughout our society right now.
• 49:40
  I mean,
• 49:41
  I know your thoughts on like COVID and Fauci and all that,
• 49:44
  but I'm on this show.
• 49:46
  We've been following that since COVID was going.
• 49:49
  It's like,
• 49:49
  we need accountability there.
• 49:51
  Yes,
• 49:51
  we do.
• 49:52
  Similarly,
• 49:53
  if there's fraud going on at a larger scale than 2008,
• 49:55
  and that that becomes apparent and it begins to affect the housing market and the economy more
• 50:01
  broadly like we need accountability there like until we start putting these people in prison
• 50:05
  they're just going to keep doing it i totally agree with that i totally agree and you know i
• 50:12
  think i think that they all got over their skis though again and and honestly it feels as if and
• 50:19
  i could be wrong but it feels as if they're not going to bail out the private sector meaning
• 50:25
  private credit, private equity. You know, I think they'll fence off the banks. And, you know,
• 50:35
  unfortunately, I think we'll lose a lot of regionals, a lot of smaller banks, which is,
• 50:39
  we need more of them. But yeah, I think they're going to let private equity roll.
• 50:46
  Well, that's where things get interesting. Like, again, trying to like,
• 50:49
  yeah, poke and prod my way to like the cascading effect. I mean, well, who's backing these private
• 50:54
  equity funds, institutions, pensions. Right. Right. Well, yeah. And the insurance and the
• 51:01
  annuities and you've already forget the big insurance company that's already went under that
• 51:06
  people are getting, you know, hugely reduced, you know, paybacks on their annuities or whatever.
• 51:14
  I mean, but yeah, the pensions, I mean, the public pensions and everybody now is in AI. And so,
• 51:22
  yeah, I mean, this stuff is, it's just, it's, it's literally everywhere. And I mean, it's hard
• 51:31
  to even imagine. And I think it was Nick Nima's piece I read today that said, you know, in like
• 51:38
  34 of the states, insurance, those, those payouts have to be paid by using state tax.
• 51:48
  So these municipalities are already, so let's say you had a plan through one of these insurance companies for a certain amount of payout or annuities.
• 51:59
  They not you don bail them out You use the tax payment you get in as a state to pay these people that got screwed by the insurance company
• 52:10
  This is brand new information to me and I've got to confirm it.
• 52:15
  But if that is true, what you're already seeing at the municipality level, and I was just
• 52:20
  talking to somebody yesterday who's tracking this like way greater detail than me.
• 52:26
  Most of the budgets, they're all in deficits.
• 52:29
  they haven't stopped, like they haven't let go any of those people that they hired during COVID.
• 52:36
  Their properties aren't going up as much. So property, they can't get as much property tax
• 52:42
  somewhere like Boston just continues to raise it, hoping, but they're running out of money.
• 52:47
  And so these municipalities are already in terrible shape. And many of them are already
• 52:52
  having to cut services and many more will soon have to cut services. And so to layer on top of
• 52:58
  something like that with some kind of crisis at an insurance company where your state has to use
• 53:06
  its tax funds that it's getting in to pay those out. I mean, good grief. Like you're talking about,
• 53:14
  I mean, I already thought the municipalities were in horrible shape. I mean, that's just,
• 53:21
  that's even worse. So, yeah. And I, I just read this today. So I,
• 53:27
  there's a thousand things I might not understand about it,
• 53:30
  but that just sounds terrible.
• 53:31
  I mean, Nick's been on the show twice since April. And, uh, I mean,
• 53:36
  just the, the web that's been woven in the insurance and private credit and
• 53:40
  private equity industry and the sort of related party and the intermingling
• 53:47
  that's going on there. It's astonishing. And it's an incredibly convoluted web that's very hard to
• 53:53
  unweave and figure out exactly who's going to do.
• 53:56
  Yes. I mean, it is almost impossible, actually. I mean, you can get close. You can't get all the
• 54:04
  way there. You know, they've gotten close. I mean, I've been, I think I found Nick also,
• 54:11
  like winter springtime. I just was a big fan of the work that he's been doing.
• 54:20
  But it is. And so like, this is what I've been doing on the securitizations on the multifamily
• 54:25
  side, just digging and digging and digging and trying to find who actually is on the hook. And
• 54:30
  it is, it is so hard. It is so hard, but you know, I'll end up and I'll be like, oh, well,
• 54:36
  that securitization bonds were traded on the Israeli stock exchange.
• 54:42
  What?
• 54:44
  How did that,
• 54:45
  how did that happen?
• 54:46
  I mean,
• 54:46
  you're like,
• 54:47
  what?
• 54:48
  I mean,
• 54:49
  it's just,
• 54:50
  but every one of these deals I look into,
• 54:52
  I have a moment like that where I'm like,
• 54:54
  what?
• 54:55
  No,
• 54:56
  no,
• 54:56
  no,
• 54:57
  no.
• 54:58
  Well,
• 54:59
  going back to UWM,
• 55:01
  like Oak tree stepping in there,
• 55:03
  a fully owned subsidiary of Brookfield,
• 55:04
  which is at the middle of a lot of the insurance.
• 55:06
  debauchery that Nick's been reporting on for months.
• 55:11
  So to your point, it's like the same actors involved in a lot of this stuff.
• 55:15
  Yeah. Yeah. And, you know, it's been one big shell game for quite a long time.
• 55:21
  I'm just amazed, I think, at how long people like.
• 55:25
  I can't I'm a big I can't I am really a big fan of the truth.
• 55:31
  And so I'm not one, like if I had to carry a lie for more than like 10 minutes or something, I would go insane.
• 55:39
  Like, how do they live like these, these lies like this?
• 55:44
  It's just, it's wild.
• 55:46
  No, there was the report of, um, this was a couple months ago now at this time.
• 55:51
  It was like some guy raised a multi hundred million dollar multifamily fund and he had to write everything down.
• 55:58
  Oh yeah, that's Scott.
• 55:59
  Scott, uh, oh, he's, he's fixed rate is for suckers.
• 56:04
  That's what he, that was his mantra.
• 56:06
  Yeah.
• 56:06
  Cause he wouldn't use fixed rate loans.
• 56:08
  Yeah.
• 56:09
  Scott Everest or Everett.
• 56:11
  Yeah.
• 56:11
  Scott Everett.
• 56:12
  Was he doing multifamily or was he doing like the, the, um, the storage facility?
• 56:18
  I think, I think he was in several things that, but Scott, I think it's Scott who you're
• 56:23
  thinking of Everett.
• 56:24
  Um, he was multifamily mainly.
• 56:26
  And I mean, like two of his just written down to zero.
• 56:30
  I mean, nothing like and I have friends who are in the high stakes, right?
• 56:36
  Resil, real estate little.
• 56:38
  It's a tiny little club.
• 56:39
  OK, what I'm hearing is that this has happened to a lot of people, but they haven't told their investors yet.
• 56:48
  And so that's what I was going to ask.
• 56:49
  How many Scots are out there?
• 56:50
  So what happening is these funds you know where they had all these LPs or whatever they starting to get the letters like sorry your investment is worth zero And I know that there just more of that to come based on this guy who kind of runs in those circles I mean even Ken McElroy you probably know him because he on Fintwit some I mean he in the middle of a foreclosure on a multifamily property right now Everybody getting hit Well that I mean again going back to if the government doesn come in backstop private equity private credit
• 57:28
  if a ton of these Scott-like multifamily funds are popping up and they're masking zeros for as long as they can
• 57:36
  and tying it to the beginning of the conversation was like, what's driving the housing market and really the economy?
• 57:42
  obviously the K-shaped economy has been the meme for the last two years.
• 57:47
  That's when you really begin to affect the people driving the economy and spending and all that.
• 57:55
  That's the question.
• 57:56
  How much of a financial hit can those actors take, those LPs take,
• 58:00
  before they start tightening the belt?
• 58:04
  I don't think it's as much as we think.
• 58:07
  And I've heard from a lot of them.
• 58:09
  I unfortunately, you know, my my goal is always to save a lot of people.
• 58:15
  And unfortunately, I hear about it after the fact often, you know, and I've already heard from many people who told me they've lost all of their investments.
• 58:24
  And, you know, these are doctors who probably still have their medical student loans.
• 58:31
  So they're not but they you know, they have this promise of being rich and and everybody lends to them and gives them money hand over fist.
• 58:39
  And that's why they often are the ones that get in the most trouble, your doctors and your dentists and your lawyers.
• 58:45
  And so I already know several who have had to start tightening the belt.
• 58:50
  And I just think it's going to get worse.
• 58:52
  But I think that that will be what's very different about this cycle.
• 58:57
  I think for the last one, this cycle will be more like the Great Depression when, you know, the top got hit as well as the bottom.
• 59:05
  And the bottom's just been taking a beating for, I mean, three years, if not longer, you know.
• 59:13
  And really, the middle class has been taking a beating since.
• 59:17
  It's a structural decline since the 70s, really.
• 59:20
  Yeah.
• 59:21
  Basically.
• 59:21
  You can zoom out that far.
• 59:23
  Yeah.
• 59:24
  A hundred percent.
• 59:24
  I was just showing someone that I was, I have someone in their early thirties that helps me out with some stuff.
• 59:33
  And this person was lamenting where they are in life.
• 59:38
  I said, well, come here.
• 59:38
  I want to show you this little chart.
• 59:40
  This is the labor force participation rate chart.
• 59:44
  And let me tell you the story of this chart and why women went into the workforce in the seventies.
• 59:50
  And then what happened in 2000 and how we got, you know, and so, but it just,
• 59:54
  it really makes me mad, Marty, that you got all these kids out there thinking that they did
• 59:59
  something wrong. And I just, it really makes me mad. You know, it should make everybody mad.
• 1:00:07
  I mean, that's what I know, you know, this is a Bitcoin focused podcast, but it's honestly why
• 1:00:11
  I've dedicated my professional and social equity to Bitcoin. Cause I think this is at the core of
• 1:00:20
  the problem. Fix the money, fix the world. You're mentioning those charts, like WTF happened in
• 1:00:24
  1971.com right like right when we went off the gold standard officially right and uh i think a
• 1:00:30
  lot of this embedded leverage that we're discussing this discussing right now is enabled just by the
• 1:00:36
  ability to create this money out of thin air yeah um loan origination right which is really how most
• 1:00:44
  of the money gets created and so you need a a forcing function of risk aversion and
• 1:00:51
  opportunity costs being brought back to the market.
• 1:00:54
  And that's what like that's sound money.
• 1:00:56
  I think sound money does that.
• 1:00:58
  And
• 1:00:59
  again, going back to accountability and not learning the lesson,
• 1:01:03
  like I don't think we're going to learn the lesson until people go to jail
• 1:01:05
  and you
• 1:01:08
  at least put
• 1:01:11
  a hurdle rate, a true free market hurdle rate
• 1:01:16
  next to credit creation to really make sure it doesn't get out of hand.
• 1:01:21
  And that's what I think sound money does.
• 1:01:23
  Right, right.
• 1:01:25
  Right.
• 1:01:26
  But we as humans always seem to forget our lessons and just repeat the same even after that, right?
• 1:01:35
  Like, I mean, pretty much you can say that a lot of while we had any prosperity was because people had learned their lessons from the Great Depression.
• 1:01:44
  And then with each generation that kind of passed away, we forgot, forgot, forgot, forgot, you know.
• 1:01:50
  And so I would love to think that we could fix it for forever, but it just feels almost as if we're doomed like Sisyphus to keep creating this credit, you know, inflation, these bubbles and, you know, these tulips or whatever it is.
• 1:02:09
  So, but I'm an eternal optimist.
• 1:02:13
  Maybe we can really learn and keep passing those lessons on.
• 1:02:17
  I am too.
• 1:02:18
  I'm optimistic.
• 1:02:20
  I am very optimistic.
• 1:02:22
  And I mean, yeah, it's like a juxtaposition of everything
• 1:02:26
  we've discussed and then say what you will about
• 1:02:29
  dead exposure of some of the actors and the AI build out. I use the tools every day.
• 1:02:37
  If you have agency, like using AI tools to do stuff and be more productive,
• 1:02:42
  it puts you in a better position than any human throughout history to actually get shit done.
• 1:02:49
  I'm optimistic because Bitcoin exists. Yes, it's taken some lumps in the last year,
• 1:02:54
  but blocks are still being produced. The ability to send in a peer-to-peer fashion still exists.
• 1:02:59
  And it is always it is has been there for almost 18 years as a as an opt out option for people.
• 1:03:07
  And I think as.
• 1:03:09
  This grift and the fraud and.
• 1:03:13
  High risk taking leading to systemic blow ups continues, people are going to realize, OK, maybe this maybe this peer to peer cryptocurrency actually makes sense and they should anchor to that in some way or another.
• 1:03:26
  Right.
• 1:03:27
  Yeah.
• 1:03:28
  you know, you know, this space, I do not.
• 1:03:34
  But it looks like, I mean, it's,
• 1:03:36
  things are looking up past couple of days. So.
• 1:03:38
  Yeah. Yeah. Well, it's good.
• 1:03:40
  I think people are looking at 40 trillion in debt.
• 1:03:43
  Scott percent doing and supporting the treasury markets with the buybacks,
• 1:03:49
  the increased buybacks.
• 1:03:52
  People are beginning to realize, Oh, well, nothing does stop this strain.
• 1:03:55
  Like the only way out is to basement or like watching the 10 year for the past, you know, well, I mean, I watch it all the time, but it is this whole summer just watching it just fight, fight, just fighting.
• 1:04:09
  And, you know, it is, it has been, yeah, I think, I think we're at the point where they
• 1:04:16
  realize that they don't have as many tools and that they're talking about it.
• 1:04:21
  Is it working as much as it used to?
• 1:04:23
  And yeah it taken some time but you know since mortgage rates went up right after they cut 50 basis points in 24 you know I been saying they not in charge I don know that they ever really were but they not the Fed not in charge The bond market is
• 1:04:38
  and that's all you need to watch really because if rates stay where they are, and by the way,
• 1:04:45
  you know, for instance, in mortgage rates, you know, the average since 1971 is 7.7 something
• 1:04:51
  percent for a 30 year mortgage rate. So we're not outside of the historical norm here by any
• 1:04:57
  stretch of the imagination, you know, but if we don't get those lower, lower rates, uh, then
• 1:05:04
  everybody who needs to refinance and who, you know, dated the rate, be it in your commercial
• 1:05:10
  real estate sector, be it in your software sectors, be it in, I mean, those people will
• 1:05:15
  not be able to refinance and that is going to cause a ton of issues. So, yeah. Yeah. The, uh,
• 1:05:22
  Where is the 30 year right now? Is it around seven?
• 1:05:24
  6.72, I believe, before we get on the phone.
• 1:05:29
  Oh.
• 1:05:29
  Yeah.
• 1:05:31
  What should people be looking at as we head into fall or looking out for?
• 1:05:37
  So I've been studying the land cycle, the 18 year land cycle, and I'm finding a lot of this research very compelling.
• 1:05:46
  and I think one of the things I kind of missed is that the data center story is a real estate story
• 1:05:52
  and I think so few things that we know are coming in the fall the largest hard net maturity wall
• 1:05:59
  we've ever had in commercial real estate which includes of course multifamily that's going to be
• 1:06:04
  big another thing that's going to come to fruition in the fall is that we're going to hear more
• 1:06:08
  from you know Blue Owl, Cliffwater, the Apollos, Blackstone, Blackstone who's in a ton of trouble
• 1:06:14
  right? That could create an issue. And then with each passing day, we get further realization that,
• 1:06:24
  and you know, we don't have enough power or water for all of these planned data center build outs.
• 1:06:31
  And so you know Blackstone just I got a big canceled one in Virginia I believe And so for me you could really see some sort of credit crisis in the fall or the end of the year
• 1:06:46
  And that would really accelerate things.
• 1:06:48
  Um, but once all of the construct or most of construction workers come home from say the 26,000 that are on site in New Albany, Ohio right now, and that big, um, complex that has the Intel plant, uh, you know, meta, everybody's there in progress with data centers.
• 1:07:13
  26,000 workers. Once those people start going home because projects have to be
• 1:07:20
  postponed, either due to they can't get the debt, they can't get the money because nobody's buying
• 1:07:25
  their debt anymore, to they don't get the power. They know they don't have the power yet.
• 1:07:32
  Once those construction workers start coming home from these sites due to those realizations,
• 1:07:37
  we'll know that the land cycle is over for this cycle. I mean, it will start up again at some
• 1:07:43
  point, but this is, that's, that'll be your true signal when you, and I think that, you know, like
• 1:07:49
  we're getting closer every day. You know, will we make it through the election? It kind of feels
• 1:07:54
  like it, but we might get a blow up in October where it's too close to the election to change
• 1:08:00
  anybody's mind about anything. Like who knows, but this fall is going to be very, very funky.
• 1:08:06
  You know, if you remember last fall, it was very funky.
• 1:08:09
  I mean, that's when we first started to see the blowups and private credit.
• 1:08:13
  But this is this one's going to be even worse.
• 1:08:15
  And then you're going to at the same time still have those foreclosures that are increasing.
• 1:08:18
  So there's just not any good news.
• 1:08:22
  And if we don again soon we going to start feel these increased diesel prices and you know and what the issues that like you know what going on with corn farmers and fertilizer prices and inflated food prices That coming in the fall as well And so it just setting up to be really really nasty in my opinion
• 1:08:50
  You mentioned midterms.
• 1:08:52
  You can very easily see the midterms actually being the trigger,
• 1:08:54
  especially if the split of the house goes a certain way
• 1:09:00
  and the market says, oh, wow, this is not good for us.
• 1:09:04
  that creates a sell-off
• 1:09:06
  which creates a cascade. You can see that
• 1:09:08
  happening as well.
• 1:09:10
  I know.
• 1:09:12
  Do you feel worn out now? I'm sorry.
• 1:09:14
  Yeah. Everybody go out there and enjoy the rest
• 1:09:16
  of your summer.
• 1:09:17
  Get some summer sun. Get close to the
• 1:09:20
  ocean. Enjoy it. Touch ground.
• 1:09:22
  Exactly. Enjoy those final
• 1:09:24
  days however you can.
• 1:09:27
  Yeah. But it's
• 1:09:28
  I mean everyone I know that sort
• 1:09:30
  of thinks about this stuff
• 1:09:32
  has had a pretty
• 1:09:34
  rough summer just because it's, um, it's really kind of difficult to look around and not have some
• 1:09:42
  understanding of what's in our future and what that's going to mean for a lot of people, you know?
• 1:09:49
  So that's, it's just, uh, it's, it's, I don't know. It's a hard, it's a hard thing to think
• 1:09:56
  about. And I'll, it's all I think about, you know, at the moment, uh, when I'm not in my garden or
• 1:10:02
  with my family or whatever, but it's, it's taking up a lot of my head space.
• 1:10:08
  Well, thank you for taking on the burden. I know, uh, I know it's not always fun,
• 1:10:13
  particularly not fun right now, but I think the information that you put out there is very, uh,
• 1:10:18
  very important. Uh, if you're not reading Melody's newsletter or sub sec, make sure you do that.
• 1:10:23
  We'll link to that in the show notes. And I, I have a feeling we'll be catching up later this fall.
• 1:10:29
  to get an update on everything that's happening.
• 1:10:31
  Me too.
• 1:10:32
  Until then, appreciate you.
• 1:10:34
  Thank you again for coming on.
• 1:10:36
  Thank you.
• 1:10:36
  It seriously is always my pleasure.
• 1:10:38
  Thank you.
• 1:10:39
  Awesome.
• 1:10:40
  Peace and love, freaks.
• 1:10:41
  Take care.