The stonk market

By Morf Morford

Tacoma Daily Index

Sometimes a slang term or nickname is more accurate or concise than a given or official name. A nickname, after all, is usually, one way or another, earned.

That “earning” may lead to a sarcastic nickname like “Tiny” or “Slim” for someone on the large side or “Einstein” for one not inclined to intellectual stimulation.

For better or worse, childhood nicknames tend to stick even if their context – the story around them – has long evaporated or become irrelevant.

The stock market, often compared to an industrial-authorized casino, has entered yet another phase – one even more abstracted from “Main Street”.

So yes, with wildly fluctuating values, often from moribund industries or companies (like GameStop, a year or so ago) or when wildly variable sectors, like energy, agriculture and crypto continue to outperform bonds and precious metals, anyone, even without a background in financial essentials, knows that the stock market is not operating quite like how most of us would imagine a “market of stocks” would work.

Such a situation lends itself to the obvious – a website dedicated to the absurdities and contradictions – not to mention foibles – of one of the benchmarks of our economy – and, of course, its excesses and all-too-public (and common) manipulations. You can see the active (and many times difficult to distinguish from reality) website here:

The housing market is not so different

The housing market is also prime material for parody.

You’d think something as concrete as housing would be at least relatively immune from speculation and becoming over-leveraged in the market.

With prices rising by the day, labor and material shortages, institutional investment companies buying properties by the hundreds and short-term rentals (like AirBnB or VRBO) keeping properties off the market and a generation of home owners retiring/downsizing at a record rate, many variables are affecting the housing market.

So is it time for a real estate bubble?

The crash of 2008, especially in real estate, and the blatant fraud in the secondary mortgage market, still lingers to some degree in our vestigial financial memory. But 2022 is not 2008.

The average FICO score of a typical American home buyer is 700.

More than 65% of home buyers already own a property, and the average American owns more than 50% equity in their home. This is the exact opposite of the over-leveraged sub-prime borrower we saw in 2007.

And, with exploding equity, if a home owner does fall behind on mortgage payments, they will (quickly and easily) sell the home and pocket the equity, rather than short-selling in a distressed market.

Prices cannot keep climbing at the rate of the past few years.

No recession is much like the ones before – or the ones to come.

The most likely “correction” to our current/recent near-delirious home appreciation is the more traditional crash. It’s a slowing down of the rate of growth, as the market hits a wall due to affordability concerns and buyers eventually seek out more affordable home markets. This is basically what has already been happening all over the country – if not most of the developed world.

Back in 2007, virtually everyone knew a crash was coming, the only real question was when.

And if any of us learned anything back in 2008-09, it was that every market is connected with every other market, and no “boom” lasts forever,

And “crashes” feel like they do last forever.

This time it’s different

2022 is not 2008.

2022 is vastly more complicated – and much more value is at stake.

We’ve never seen REITs (and other investment/retirement portfolios) so fully vested in the housing market before.

The eye on short term profits is driving up rents and prices on a generation already carrying heavy education debt.

The dead-weight of high debt and high housing costs will (eventually) drag the economy down which could cause a downward vicious cycle.

Add to this the sheer demographic inevitability of a generation of boomers dying or downsizing and leaving both cash and houses (and mountains of equity) to their children.

Recession flavors

Since the late 70’s, we have had seven recessions (counting the recent COVID-inspired version). Each one had its own flavor and context – and set of causes. And categories of what could be called “collateral damage”.

Some were more “preventable” than others.

Some seemed almost designed to consolidate wealth (hence the popular but not legally binding “too big to fail” mantra of 2008).

The primary lesson learned, it seems, was that if a company, from major financial institutions to Facebook or Amazon or Apple was “big” enough, it would never fail; it would have the resources to ride out any risky (or crazy) variables the world might throw at it.

In short, in the early 2020s, every market and industry, from lumber to toilet paper to eggs is in the midst of a “stonk market”.

What the rest of the 2020s will bring us is anybody’s guess.

But I do know that those companies that keep their prices within range and serve us well will have customers for life.