Grey Rhodes Advisors

09/04/2024

The Buyback Tailwind for Equities

Companies authorized $107 BN in new buybacks last month, the most on record for any August.

The dollar value of announced buybacks was 17% higher than the previous August record.

Overall, Goldman’s corporate buyback team estimates $1.15 TN worth of authorizations and $960 BN of executed buybacks this year. Those would represent the most since 2022, according to Birinyi Associates.

Read Natalia Kniazhevich: https://www.bloomberg.com/news/articles/2024-09-04/companies-approved-107-billion-in-buybacks-ahead-of-latest-rout?srnd=homepage-americas&sref=1lDnBweI

08/02/2024

Rising Temperatures = Rising Violence

The article below describes how America built an AI tool to predict Taliban attacks.

It's a very interesting read, but one aspect stood out to me:

Not only is political violence is not random, but it is highly correlated with temperature.

A paper published in International Organisation by Andrew Shaver and Alexander Bollfrass in 2023 showed that high temperatures were correlated with violence in both Afghanistan and Iraq.

When days went from 16°C highs to more than 38°C, they observed, “The predicted probability of an Iraqi male expressing support for violence against multinational forces [as measured in opinion polls] increased by tens of percentage points.”

Against the backdrop of a steadily warming planet, it's a sobering observation.

https://www.economist.com/science-and-technology/2024/07/31/how-america-built-an-ai-tool-to-predict-taliban-attacks

08/01/2024

135 West 50th Street, a 23-Floor Manhattan Office Building, Just Sold at a 97.5% Discount

In 2006 it sold for $332 MM.

On Wednesday, it changed hands for $8.5 MM.

The owner who sold in 2006 said, “What’s shocking is how fast the valuations dropped now that we’ve seemingly reached bottom, or close to it.”

Yes, $8.5 MM isn't zero, but on a property that previously sold for $332 MM, it's close enough to call it a bottom - at least for that property.

By the way, the auction was for the building itself, not the land, which is owned by a publicly traded real estate firm which collects a monthly lease.

But the rent from the building’s current tenants is not enough to cover those monthly payments, which are set to increase every five years and do not expire until 2123.

Read Matthew Haag:
https://www.nytimes.com/2024/08/01/nyregion/manhattan-office-building-auction.html

07/31/2024

PE Firms Feeling the Unwelcome Consequences of Buy and Hold

Higher interest rates have triggered a number of unwelcome consequences for PE firms accustomed to exiting their investments at will, including:

- It has naturally become harder to sell portfolio companies.

- The valuations for those sales have come down, driving down fund returns.

- Balance sheets are under pressure due to the rising cost of adjustable-rate loans.

- Any effort to exit a hard-to-sell position must be weighed against the risk that a failed attempt could leave the firm with a potentially tainted asset.

- Investors in PE funds who are exercising their right to redeem are forcing fund GPs to borrow against portfolios already under pressure to meet those redemptions, piling portfolio-level leverage on top of the significant leverage already existing at the position level.

If not a recipe for disaster (every PE fund is different), it is an extremely challenging set of circumstances that is only becoming more difficult as more time passes without a meaningful decline in interest rates.

Read Michelle Celarier:
https://www.institutionalinvestor.com/article/2dkcwhdzmq3njso767d34/portfolio/private-equity-professionals-are-fighting-fires-in-their-portfolios-slowing-down-the-recovery?

07/25/2024

Bank Loan Losses Continue to Outstrip Estimates

New York Community Bancorp’s $NYCB stock fell as much as 17% after reporting provisions for loan losses significantly higher than every analyst’s estimate.

The second-quarter loan provision was $390 MM, well above the average estimate of $193 MM.

As more banks report their most recent quarter's results, it's becoming increasingly evident that the market continues to underestimate the latent loan losses sitting on bank balance sheets.

Read Guillermo Molero:
https://www.bloomberg.com/news/articles/2024-07-25/nycb-s-flagstar-to-sell-mortgage-servicing-unit-for-1-4-billion?sref=1lDnBweI

New York Community Bancorp’s stock fell as much as 17% after reporting provisions for loan losses higher than every analyst’s estimate.

07/25/2024

Fed Curve Finally Normalizing?

The yield on the 2-year US Treasury note traded just 12 basis points above the 10-year — the closest the market has come to ending the inversion in place since the middle of 2022, and much narrower than the spread of more than 50 basis points a month ago.

Read Phil Serafino:
https://www.bloomberg.com/news/articles/2024-07-25/everything-you-thought-you-knew-about-2024-markets-has-changed?srnd=homepage-americas&sref=1lDnBweI

07/20/2024

Bankruptcies Spiking

June marked a historic surge in US corporate bankruptcy filings, with the highest number recorded in a single month since at least the start of 2020 and surpassing half-year figures seen in over a decade.

The pace accelerated from the first months of 2024 and is rivaled by only the busiest months in 2020, when the shock from COVID-19 pushed a relatively higher number of companies into bankruptcy.

The 346 total filings so far in 2024 is also higher than any comparable figure in the prior 13 years.

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-corporate-bankruptcies-in-june-reach-highest-monthly-level-since-early-2020-82297569

04/26/2024

Hitting the highest level since March 2021, in April 43% of US small businesses were unable to pay their rent in full due to economic headwinds.

Independent restaurants are having the most trouble, with 52% not paying April rent on time. On the other hand, just 20% of small manufacturers are delinquent.

Read Alex Tanzi's piece: https://www.bloomberg.com/authors/ADENOlzHbyY/alexandre-tanzi?sref=1lDnBweI

04/26/2024

How an obvious bubble could continue to inflate...

This piece by Rebecca Feng at the The Wall Street Journal is a great overview of how the boom got out of hand, and what made it uniquely perilous to short.

https://www.wsj.com/real-estate/china-real-estate-bubble-bust-35a2b7db?mod=itp_wsj

04/17/2024

As John Plender put it in his new piece in the Financial Times:

𝙄𝙣𝙫𝙚𝙨𝙩𝙤𝙧𝙨 𝙢𝙪𝙨𝙩 𝙧𝙚𝙖𝙨𝙨𝙚𝙨𝙨 𝙩𝙝𝙚𝙞𝙧 𝙫𝙞𝙚𝙬 𝙤𝙛 ‘𝙨𝙖𝙛𝙚’ 𝙖𝙨𝙨𝙚𝙩𝙨.

Old financial certainties are vanishing, and new ones are yet to replace them.

According to the IMF, debt in the 39 economies it terms advanced rose from 110% of gross domestic product in the 1950s to 278% in 2022.

The share of global financial assets held by these non-bank institutions has risen from 25% after the 2007-08 crisis to 47.2% in 2022, higher than the 39.7 % of conventional banks.

More than 30,000 com­pan­ies have del­is­ted glob­ally since 2005, not­ably in the US and Europe.

Read his excellent article here: https://www.ft.com/content/0b78c68b-c65c-4080-b779-17041c290eaa

As western governments shy away from debt reduction and structural reform, investors must reassess their view of ‘safe’ assets

04/13/2024

Florida Is Not So Cheap Compared With New York These Days

According to SmartAsset, in 2023 a move from NYC to Miami would save a person with a $100,000 salary an estimated $37,166 a year.

In 2019, that number was around $51,273.

For those earning $250,000, the savings in 2023 were $88,036, compared to $122,956 in 2019.

So, no surprise really: a bunch of people moved to Florida and it got more expensive.

04/12/2024

I'd call this a 𝙩𝙧𝙚𝙢𝙤𝙧...