MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 902 votes

The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.

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Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes
3y

If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 

See this reply in the discussion

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  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    The connection between gov. policy and bank runs occurred in any country to this is nothing new.

    Today we blame SVB, tomorrow we will talk Ally, FRB, Credit Suisse , the difference would be the circumstances.

    I'm not arguing that.  I'm simply saying that it's irrelevant.

    The total long-term bond holdings across all banks in the US is between $3-6T.  Assuming all those bonds were purchased back when rates were 0%, and assuming they were all sold today, the loss would be between $500M and $1.5T.

    While that's a lot of money, it's literally less than half of annual GDP.  The purpose of the Fed is to protect the economy at large, which is worth $25T.

    The Fed shouldn't be making policy decisions based on the potential for an absolute worst-case scenario of a trillion dollars when their charter is to protect the $25T.

    Just my $.02...


     so the question is who and what decides the best to protect the $25T economy, right.
    If Fed chairman today is James, Bruce or Michael, the world history would be different as everyone would have different idea how to handle things. 

    Even between Bernanke, Yellen and the bro Powell, each of them is having different opinion and style, the first guy is the helicopter money printing guy while the last is following his 1920's predecessor that so hypnotized to inflation.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @James Hamling:

    Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.


    Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 


     James is right, stock company valuation is an arbitrary number only for that given time. When Tesla stock is $1,000 or $100 ,its opex/capex doesnt change although forward earnings may be different.

    Arbitrary number? 

    For the vast majority of companies, the value of their equity is directly related to the discounted cash flow of their future earnings.

    This is literally the premise of how equity is valued, regardless of whether you're talking about stocks, cash flowing real estate, or any other cash flowing asset.

    Tesla, like many emerging tech companies, doesn't have well-defined future earnings, and there is additional value built into the equity for potential innovation.  But, choosing an outlier like that doesn't change the literal premise of equities markets.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:

     so the question is who and what decides the best to protect the $25T economy, right.

    No, that's not a question.  For the past 100+ years, we've known exactly who makes these decisions and how.

    People may not like the answer (and I don't particularly like the answer), but it's most certainly not a question.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @James Hamling:

    Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.


    Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 


     James is right, stock company valuation is an arbitrary number only for that given time. When Tesla stock is $1,000 or $100 ,its opex/capex doesnt change although forward earnings may be different.

    Arbitrary number? 

    For the vast majority of companies, the value of their equity is directly related to the discounted cash flow of their future earnings.

    This is literally the premise of how equity is valued, regardless of whether you're talking about stocks, cash flowing real estate, or any other cash flowing asset.

    Tesla, like many emerging tech companies, doesn't have well-defined future earnings, and there is additional value built into the equity for potential innovation.  But, choosing an outlier like that doesn't change the literal premise of equities markets.


     Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:

    Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

    That's simply not true.  Look at the historical P/E ratios for any major index, and you'll see that for the vast majority of the history of that index, the ratio is within one standard deviation of the mean.

    That would indicate that earnings is the primary driver of equity prices.  (And it wouldn't be hard to do a regression analysis to prove it.)

    Do you have any data that indicates that equity values are tied to something other than future earnings expectations?

  • Investor · Astoria, NY · Member since 2016 · 46 posts · 21 votes
    3y
    Quote from @Jason Malabute:

    The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

    Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

    When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

    Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

    In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

    As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

    In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.


     Fully agree, and all the more reason to leave as a little money as possible in the banks and dump it into real estate. As well as businesses for more cash flow.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @J Scott:
    Quote from @James Hamling:

    Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.


    Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 


     In a way yes. Stocks are a perceptual concept of value, evidence of this is reflected in the daily movements in the stock market itself. 

    Let's take AT&T for an example. Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value.     And, shortly there after, it had a similar "sling-shot" back up in price, returning near it's previous price, again without any fundamental cause or reasoning. 

    Stocks move like this every day, week, month, moving in a disconnected manner to the actual business fundamentals. If stocks moved and traded based on fundamentals of the business, they would be very slow moving, and in very tiny incremental fractions of a % on any daily action aside from those who have fundamental impactors. 

    Now yes, stocks have a foundational component of the business fundamentals which places a kind of "fence" on that price range, but the list is long of those who are priced and traded on PERCEPTUAL, again another example is Tesla, or how about AMC or GameStop, or eXp Realty, these are just a few who have clearly moved in price actions far far disconnected from business fundamentals.

    Now for the thought of a person owning a stock and saying this is a set % of a company, it is not, that itself is only a perceptual concept. because reality is that company could split the stock diluting and changing the value of that stock held, or reverse split, and unless your Claus Schwab or Buffet most do not hold a sizable enough position to have any control of influence of such actions happening. So while that stock IS a note marking a certain ownership, to what degree and size of ownership stake it is, is a perceptual and conceptual one as it can be changed thus changing it's value. 

    Thus, stocks are an item of fundamental basing BUT operate with a perceptual/conceptual value basis. 

    Very similarly to fine art. A Picaso has a fundamental value founding, but the actual price value changes wildly based upon perceptual/conceptual value basis. 

    In theory, a "good" stock will not go to $0, but it can very wildly based on all kinds of factors and many of those are disconnected to the actual business facts themselves. eXp Realty has been on a steady MASSIVE growth clip, expanding country after country, gobbling up market share, expanding revenue and profits, at same time stock price is dropping massively. If stock moved in exact proportion to business fundamentals, it wouldn't have had the parabolic rise it had, nor the current exceptionaly low price it has. 

  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    3y

    You cannot absolve the Fed or the federal government for any of their role in this. Who does the FED get its marching orders from? Do they do this all on their own? Doubtful.  it would be like absolving the soldiers in Germany in 1939 from any guilt whatsoever. They knew what they we're doing..

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Sonja Sevcik:

    Why is SVB the "dangerous precedent that can engage in reckless behavior with little or no consequences?"  What about the fat cat "bro" investor that made the call(s), text(s), post(s), etc. that caused $42Billion in deposits to leave the bank in two days?  Do not scapegoat SVB or the US government for this mess, scapegoat the "bro" capitalist that got all his money and friend's money out and took down a bank in two days!  What the hell?  This same "bro" capitalist would also like to see rumors float around cyber space that this is the beginning of a national bank take-over (JC help us) because he also has a hand in national politicians that want to take down the government, Crypto, and would like to see the FED stop raising rates to keep his negative cash flow tech enterprises afloat, not to mention his cyber spy company.  While I would like to get back to 5% mortgages for cash flow positive rentals, lets stop the real steal ... our national financial stability and if he can do it democracy.  Just "Google" the SVB news on Friday and then read the "bros" bio!  Yuck!

     I'll put it simply, all those Yale, Brown,Stanford graduates bro capitalist are just bunch of FOMO haha even you don't need to be smart to be "bro capitalist".

    It is the inventor that's smart, and those "bro capitalists" are just forcing everyone around him to invest in the inventor, and withdraw at the same too, that's the name of the game.

    That's why the freaking stupid about these bro capitalists are that the number of unicorn startup in 2022 triples in 2021 alone compare to 2022, while decreased by a third in 2023. How could tech invention is related to the interest rate if you think about it lol


     It is worth noting part of the increase in start-ups is heavy in Data/AI & Security space. I agree with everything you said but there was a natural acceleration in those domains because of what is going on. Particularly in AI related. Everybody is just tackling that at light speed without really knowing what they will find so to speak - and so a lot more start-ups.

    But everything you just said about the VC/PE firms is why I’ve been so vocal about Thiel. And if he or his buddies swoop in to buy - and the govt lets it happen it’s a joke. 

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @James Hamling:

     In a way yes. Stocks are a perceptual concept of value, evidence of this is reflected in the daily movements in the stock market itself. 

    Let's take AT&T for an example. Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value.    


    Using that rationale, I assume you believe that real estate is also only a "perceptual concept concept of value?"

    The same principles apply -- while my property may have absolutely no change in income/expenses, values can change wildly over short periods of time.  In the single family space, value changes based on other similar properties that sell.  In the commercial space, value changes based on fluctuating cap rates and interest rates.

    So, again, using your definition, I assume you agree that real estate is the same?

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @James Hamling:

    Owning a stock, that's perceptual. There is no actual value there, it's an idea, a concept of a thing, and it only holds value as long as that concept holds value.


    Huh?  Stock is equity in a physical company.  Are you saying that companies have "no actual value" and are just a "concept?" 


     James is right, stock company valuation is an arbitrary number only for that given time. When Tesla stock is $1,000 or $100 ,its opex/capex doesnt change although forward earnings may be different.

    Arbitrary number? 

    For the vast majority of companies, the value of their equity is directly related to the discounted cash flow of their future earnings.

    This is literally the premise of how equity is valued, regardless of whether you're talking about stocks, cash flowing real estate, or any other cash flowing asset.

    Tesla, like many emerging tech companies, doesn't have well-defined future earnings, and there is additional value built into the equity for potential innovation.  But, choosing an outlier like that doesn't change the literal premise of equities markets.


     Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.


    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

    That's simply not true.  Look at the historical P/E ratios for any major index, and you'll see that for the vast majority of the history of that index, the ratio is within one standard deviation of the mean.

    That would indicate that earnings is the primary driver of equity prices.  (And it wouldn't be hard to do a regression analysis to prove it.)

    Do you have any data that indicates that equity values are tied to something other than future earnings expectations?


     See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

    Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 

    And yes, P/E does provide a grounding with a "gravity" of pricing BUT even with that, the system is conceptual, because what is an "acceptable" P/E ratios changes itself based upon other market adjustments of the time. Simply look back the last 5yrs and see how the P/E ratios wildly varied through this time period for what was "acceptable" and than not. 

    It's like a football game being played where at one moment a touchdown is 6pts and than next quarter it's 2. The value basis of a same action (P/E) results in different value ranges (share price) based upon outside actions. 

    Over a long vision things smooth out, but in the more immediacy, that finalized value (per share price) can range wildly with a same P/E. Again, Tesla is the greatest example of this I can think of, what investors accepted for a P/E was absolutely bonkers but Cathie Woods was barking what a great value it was at those nose bleed levels. Again, Cathie Woods, not some no-name novice. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @James Hamling:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

    That's simply not true.  Look at the historical P/E ratios for any major index, and you'll see that for the vast majority of the history of that index, the ratio is within one standard deviation of the mean.

    That would indicate that earnings is the primary driver of equity prices.  (And it wouldn't be hard to do a regression analysis to prove it.)

    Do you have any data that indicates that equity values are tied to something other than future earnings expectations?


     See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

    Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 


    Again James right, what Scott mentioned in stock valuation in the 1970s/1980s...... it's more complicated than just PE ratio Scott. If it's just PE we are all already rich here lol

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.


    Well last 5-7 years has had very odd ratios on the the big tech stocks but if you go towards the other industries it’s a LOT more stable but I still agree there is some perceptual value. It’s just in tech it got widely out of control. 

    For example even in the AT&T example James made (BTW verizon took similar hit)
    the company might not have changed but the way TMObile was hitting both companies + plus the perceptions in value did change over that same period. So I don’t know if I’d say AT&T was in a vacuum. At the same time AT&T and VZ was taking a hit T-Mobile was growing market share and hitting them hard. 

    Also some of the things that AT&T and VZ got into (digital media) hurt both of them. T-Mobile stayed hyper focus.


    I’m not saying I disagree with James or you - especially tech stocks. but I’m also saying I agree with Scott it’s a bit of both to me. 70% around health of company, market share, and growth options, and a lot of perceptual. That said over last 5-7 years in tech it’s been a lot less facts and more perception. 

    It’s also a whole other discussion to call out that Wall Street as large with it’s ever more ridiculous growth requirements has gotten out of control. Lots of books out there about how bad the GE model was for the long term but somehow it hasn’t hit Wall Street either. Cut too far and you eventually hurt the product/company.

     

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @J Scott:
    Quote from @James Hamling:

     In a way yes. Stocks are a perceptual concept of value, evidence of this is reflected in the daily movements in the stock market itself. 

    Let's take AT&T for an example. Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value.    


    Using that rationale, I assume you believe that real estate is also only a "perceptual concept concept of value?"

    The same principles apply -- while my property may have absolutely no change in income/expenses, values can change wildly over short periods of time.  In the single family space, value changes based on other similar properties that sell.  In the commercial space, value changes based on fluctuating cap rates and interest rates.

    So, again, using your definition, I assume you agree that real estate is the same?


     No, I would argue that Real Estate is "the" example of Fundamental value vs perceptual/conceptual. 

    In all items there is going to be a component of each fundamental and perceptual/conceptual value, so it's really a matter of degrees of which. 

    Commercial Real Estate is a GREAT example, in my opinion, of a Fundamental basis. 

    Even that component where one could say market sale comparable are "perceptual" reflections of value I say no, they are not, they are reflections of fundamentals. Supply - Demand is a fundamental, production costs are fundamentals. Luxury real estate yes, totally a perceptual value basis because there is no utilitarian argument for a million dollar 2br condo in a market that has median home values of $315k but, I sold it. 

    As a whole, Real Estate is the #1 most "fundamental" asset in existence. '08' is a great example of this, the massive glut of supply, meeting a collapse of the financial system to facilitate conveyance of units, thus pressing impact from such Supply - Demand impactors, correctly dropped market price. ALSO at same time, the massive INCREASE to tenant pool via conversion of owners too tenants RAISED rents, again Supply - Demand fundamentals working in action. 

    Short-short version of where I am coming from; A stocks price can drop in a day 50% simply because people THINK it's worth something different. In real estate, many MANY people today THINK Real Estate "should" cost less, and it does not change it's price near to at all, as we are seeing. Because the lumber, electrician, land, taxes, they don't care what people "think" of the price, those prices are connected to FUNDAMENTALS. 

    Yes, if everyone got a 50% raise tomorrow, people could "think" real estate is so "cheap" in proportion of there incomes and run up prices, but prices have a solid founding minimum which is based on fundamentals. Real Estate will never go to $0, it will never loose 60% in 48 hours. Stocks can, and have. 

    It's no secret I am not a writer and arguably a rather poor conveyor of information, so maybe I am not saying it correctly to what my mind sees and understands. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @James Hamling:
    Quote from @J Scott:

    Short-short version of where I am coming from; A stocks price can drop in a day 50% simply because people THINK it's worth something different. In real estate, many MANY people today THINK Real Estate "should" cost less, and it does not change it's price near to at all, as we are seeing. Because the lumber, electrician, land, taxes, they don't care what people "think" of the price, those prices are connected to FUNDAMENTALS. 

    THIS.

    You explain different investments clearly. 

    Real estate is quite stable and predictable, maybe even more consistent that gov. bonds and MBS notes. And this is true not just in US but also in Europe and Asia.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.


    Well last 5-7 years has had very odd ratios on the the big tech stocks but if you go towards the other industries it’s a LOT more stable but I still agree there is some perceptual value. It’s just in tech it got widely out of control. 

    For example even in the AT&T example James made (BTW verizon took similar hit)
    the company might not have changed but the way TMObile was hitting both companies + plus the perceptions in value did change over that same period. So I don’t know if I’d say AT&T was in a vacuum. At the same time AT&T and VZ was taking a hit T-Mobile was growing market share and hitting them hard. 

    Also some of the things that AT&T and VZ got into (digital media) hurt both of them. T-Mobile stayed hyper focus.


    I’m not saying I disagree with James or you - especially tech stocks. but I’m also saying I agree with Scott it’s a bit of both to me. 70% around health of company, market share, and growth options, and a lot of perceptual. That said over last 5-7 years in tech it’s been a lot less facts and more perception. 

    It’s also a whole other discussion to call out that Wall Street as large with it’s ever more ridiculous growth requirements has gotten out of control. Lots of books out there about how bad the GE model was for the long term but somehow it hasn’t hit Wall Street either. Cut too far and you eventually hurt the product/company.

     


     To clarify my ATT example, I have the below chart detailing the exact event in mind. 

    When it was all happening, I searched high and low for a fundamental reasoning, all I could find just didn't justify. So, I got in under $15, because I simply couldn't find a "why". And this is my point, it was moving in a way disconnected to fundamentals. And as a whole, this happens a lot in WS, a heck of a lot, hence the entire Day Trading segment. 

  • Member since 2023 · 97 posts · 60 votes
    3y

    "Fundamental value?"  I perform fundamental value analysis on capital market entities all the time.  

    I have a new term I would like to contribute:  Nihilistic Economics. 

    There is someone reading this, and they know it's their description.  I'm not going to point that finger - no need.

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.


    Well last 5-7 years has had very odd ratios on the the big tech stocks but if you go towards the other industries it’s a LOT more stable but I still agree there is some perceptual value. It’s just in tech it got widely out of control. 

    For example even in the AT&T example James made (BTW verizon took similar hit)
    the company might not have changed but the way TMObile was hitting both companies + plus the perceptions in value did change over that same period. So I don’t know if I’d say AT&T was in a vacuum. At the same time AT&T and VZ was taking a hit T-Mobile was growing market share and hitting them hard. 

    Also some of the things that AT&T and VZ got into (digital media) hurt both of them. T-Mobile stayed hyper focus.


    I’m not saying I disagree with James or you - especially tech stocks. but I’m also saying I agree with Scott it’s a bit of both to me. 70% around health of company, market share, and growth options, and a lot of perceptual. That said over last 5-7 years in tech it’s been a lot less facts and more perception. 

    It’s also a whole other discussion to call out that Wall Street as large with it’s ever more ridiculous growth requirements has gotten out of control. Lots of books out there about how bad the GE model was for the long term but somehow it hasn’t hit Wall Street either. Cut too far and you eventually hurt the product/company.

     


     To clarify my ATT example, I have the below chart detailing the exact event in mind. 

    When it was all happening, I searched high and low for a fundamental reasoning, all I could find just didn't justify. So, I got in under $15, because I simply couldn't find a "why". And this is my point, it was moving in a way disconnected to fundamentals. And as a whole, this happens a lot in WS, a heck of a lot, hence the entire Day Trading segment. 


    So I work with one of those companies. Super familiar with all the ups and down of telecom last year. THat specific drop I’d have to go research but Q3 wasn’t good on the consumer side of AT&T and VZ. Both are losing to TMObile at a rapid pace. Fundamental direction on Tmobile is better also. 

    That date is about 2 weeks before both their earnings call. Could be market sentiment on expecting a miss based on the harsh language both companies have had in earnings. No idea and there can definitely be swings which I was calling out but last year both AT&T and VZ took a lot of pain due to fundamentals. 

    One day swing god who knows that tends to be sentiment - usually - Credit Suisse rearing it’s  ugly head again today as an example but it’s a mix of sentiment and the report over weekend. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @James Hamling:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    Yes DCF if you count as "theoretical price" only, but in actual reality, the price is more determined by the macro economy and supply/demand of particular stock, if it's just DCF value the stock price only moves by one to three dollar.

    That's simply not true.  Look at the historical P/E ratios for any major index, and you'll see that for the vast majority of the history of that index, the ratio is within one standard deviation of the mean.

    That would indicate that earnings is the primary driver of equity prices.  (And it wouldn't be hard to do a regression analysis to prove it.)

    Do you have any data that indicates that equity values are tied to something other than future earnings expectations?


     See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

    Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 


    Again James right, what Scott mentioned in stock valuation in the 1970s/1980s...... it's more complicated than just PE ratio Scott. If it's just PE we are all already rich here lol


     If it's just P/E, not sure why my OXLC is at 3.58X while the industry average is at 12.22X. I should have a very nice "correction" coming if peg's back to "par".     

    And no, not selling my OXLC, just an example. BUT, if the right real estate deal came along, yup, I'd liquidate that holding, at loss, to re-deploy in a heartbeat. My WS holdings are just a high interest savings account in my mind. Although full disclosure, so much red in that "savings account" nowadays, lol, so so much red....... I shouldn't have taken profit's in '21'. Still, my div's blow away any savings account in existence. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.


    Well last 5-7 years has had very odd ratios on the the big tech stocks but if you go towards the other industries it’s a LOT more stable but I still agree there is some perceptual value. It’s just in tech it got widely out of control. 

    For example even in the AT&T example James made (BTW verizon took similar hit)
    the company might not have changed but the way TMObile was hitting both companies + plus the perceptions in value did change over that same period. So I don’t know if I’d say AT&T was in a vacuum. At the same time AT&T and VZ was taking a hit T-Mobile was growing market share and hitting them hard. 

    Also some of the things that AT&T and VZ got into (digital media) hurt both of them. T-Mobile stayed hyper focus.


    I’m not saying I disagree with James or you - especially tech stocks. but I’m also saying I agree with Scott it’s a bit of both to me. 70% around health of company, market share, and growth options, and a lot of perceptual. That said over last 5-7 years in tech it’s been a lot less facts and more perception. 

    It’s also a whole other discussion to call out that Wall Street as large with it’s ever more ridiculous growth requirements has gotten out of control. Lots of books out there about how bad the GE model was for the long term but somehow it hasn’t hit Wall Street either. Cut too far and you eventually hurt the product/company.

     


     To clarify my ATT example, I have the below chart detailing the exact event in mind. 

    When it was all happening, I searched high and low for a fundamental reasoning, all I could find just didn't justify. So, I got in under $15, because I simply couldn't find a "why". And this is my point, it was moving in a way disconnected to fundamentals. And as a whole, this happens a lot in WS, a heck of a lot, hence the entire Day Trading segment. 


    So I work with one of those companies. Super familiar with all the ups and down of telecom last year. THat specific drop I’d have to go research but Q3 wasn’t good on the consumer side of AT&T and VZ. Both are losing to TMObile at a rapid pace. Fundamental direction on Tmobile is better also. 

    That date is about 2 weeks before both their earnings call. Could be market sentiment on expecting a miss based on the harsh language both companies have had in earnings. No idea and there can definitely be swings which I was calling out but last year both AT&T and VZ took a lot of pain due to fundamentals. 

    One day swing god who knows that tends to be sentiment - usually - Credit Suisse rearing it’s  ugly head again today as an example but it’s a mix of sentiment and the report over weekend. 


     That's my point, it was sentiment, which is a perception, not a fundamental. And as the actual fundamentals came out, that proved the perceptions unfounded, it leapt back up to a level based around the fundamentals. 

    Which again, restates the fact that WS pricing moves heavily on Perceptual basis vs Fundamentals. 

    Again, if WS moved based upon Fundamentals, the movements would be near to nothing until reports come out and than would move in incremental movement to that report. We would see flat lines that than move for a few days each quarter. 

    And all the HFT would be out of it. Same as day traders. WS is not designed to act on fundamentals, the entire system is designed to TRADE, the profit motive is to make trades, and for trades there needs to be movement. The system itself is "rigged", in many ways but just keeping this to the founding premise, it's not designed to be an accurate reflection of values, it's designed for trading, by traders, for trading sake. 

  • Member since 2023 · 97 posts · 60 votes
    3y

    Oxford Lane?  I have a substantial position there.  Be careful, it is part of the shadow banking industry, i.e. Collateralized Loan Obligations, i.e. tranches of senior loans made into bonds.  Those underlying loans are not investment grade.  I like this CEF because it has little exposure to real estate.  

  • Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    3y

     Silicon Valley Bank had nearly twice the risk as JPM. I will post a chart later showing them compared to major banks. 

  • Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    3y

    Here is a slide about risk. It should also be pointed out that the new Chief Risk Officer spent all of her time on ESG and DEI and none of it on risk. 

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