The Market Radar

We anticipate monitor and comment on market-moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t afford to ignore us.  In one word, perspicacity.

An educated citizenry is a vital requisite for our survival as a free people– Thomas Jefferson

By seeking and blundering, we learn. – Johann Wolfgang von Goethe

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Susan Rice VEEP Pick Ramping

Susan Rice has narrowed a 33 point gap on August 2nd in the prediction markets to within 7 points of Senator Kamala Harris to become Joe Biden’s choice as the Democratic vice presidential nominee.     See our July 19th post, Susan Rice — The Next VEEP?

Rice served as President Obama’s  Ambassador to the United Nations and  National Security Advisor.

Biden has already locked himself into choosing a woman running mate and he does owe the African-American community for pulling his ass out of the fire and saving his candidacy in the South Carolina primary, especially indebted to Congressman James Clyburn.

She wasn’t even on the radar a few months ago.

When choosing a candidate, the most important question is:  Is she/he presidential timber?  Rice, definitely fits the bill, more so, we believe, than the others on the shortlist.  We like her and so does the Trump camp, who believes she is good fodder for the Obama/Hillary Deep State conspiracies — great IPA, by the way.

Deep State


Biden is expected to name his pick in the next week.

Susan RIce

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Going Deeper: PMIs vs Factory Utilization

Purchasing Managers’ Index (PMI)

The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change. The further away from 50 the greater the level of change.  – Investopedia

We had to post this after hearing a market talking head rationalizing the big stock market moves based on,

“The data is good.  The U.S. PMI hasn’t been this high since November 2018.”


It’s time for a reality check and some Will Rodgers,

It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so. – Will Rodgers

By definition, the PMI is a diffusion index designed to measure the prevailing direction and robustness of the month-to-month changes in manufacturing.

July’s PMI has zero relationship to the “November 2018” PMI except for the fact both months were expanding compared to the prior month.   The relative levels mean absolutely nothing.

The July PMI comes in “strong” yet factories are still operating at much lower capacity than they were in November 2018.



Avoid the dumb-dumb pills of the talking heads, think and analyze for yourselves, folks.

We will get the same bullshit noise after Q3 GDP prints at around 20 percent. on October 29th,  just five days before the election.

“the largest and strongest quarterly GDP expansion on record!” 

It will be true as a stand-alone statement, in fact, double the next strongest quarterly annualized expansion of 10 percent in Q1 1958, but please keep it in context.

We preach a lot about “context” at GMM.    The strong Q3 GDP print will come after,


See the article here

So, even if  Q3 GDP comes in with the “greatest expansion ever” at 20 percent annualized,  real output (GDP) in the U.S. will still be 6.35 percent below Q4 2019 GDP.

Why Markets Crash

It is also important to realize markets like to move on first derivatives (changes in levels) and tend to ignore levels, such as valuations until they do.  One of the reasons why markets tend to crash and experience more left tail outsized events than statistics would suggest.

One last thing,


Beware of Semantic and Quantitative Fascism

The economy, as a whole, is not strong.

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Gold Heading To $3,000

The gold move has been astounding but not surprising.  In our book, the main driver of gold is the perception of the central bank’s commitment to maintaining the purchasing power of its fiat currency.   Unless the Fed panics and begins to shut down the digital printing press, gold is moving much higher.


The chart below illustrates the measured move target to 2793.90, which simply adds the move from the Sep ’11 high to the Dec ’15 low to the Sep ’11 high.

Gold, baby.


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Mars 2020 rover: How far we’ve come – CNET

Very cool.

I remember buying a computer for my loft apartment at the Archive in Greenwich Village just to watch the 1997 Mars rover, Sojourner,  land, and cruise around the Red Planet.  The brand new days of the internet and analog dial-up.

We know one of the NASA engineers who was tasked with building and now monitoring the mechanical arm that will grab rocks from Mars and bring them back on board the Perseverance, which launched last Thursday and is scheduled to land on Mars, February 18, 2021.

We also know two teenage girls with the foresight to purchase a couple acres on Mars.  Talk about real estate speculators!

The high-tech Mars 2020 rover is about to launch into space (complete with its own helicopter). But how does this one-tonne beast compare to the original, pint-sized rover we sent to Mars in 1997?

Subscribe to CNET:



See the article here 

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And The Winner is…

Not even close.

“So the last will be first, and the first will be last.”  Gospel of Matthew

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Complicated Capilalism

Compassionate capitalism is our mantra around but the pandemic has really complicated things, especially when it comes to private property rights.   As the pandemic drags on, who is right?  Renters or landlords?

Chapter 19 Of U.S. Bankruptcy Code?

We suspect there is going to have to be new and special legislation, maybe adding a Chapter 19 to the U.S. bankruptcy code,  to clear the arrears built with rental forbearance.  We have friends on both sides,  landlords who are not getting paid and renters who cannot afford to pay.

It’s complicated but someone will eventually have to take the hit — that is, the loss of rental income, both from residential and commercial properties.

Our priors are that a big chunk of the stock of rental arrears will find its way back to the banks and the Fed will take it off their balance sheets with the miracle of the digital printing press.   Gold, baby!

The real estate lobby is very powerful.

Land Of Make Believe

Stunning, but not surprising, how all these issues have been ignored and swept under the rug.  The debts that are accruing and not yet reported are in extend and pretend mode.  How the PPP loans are just a hidden form of unemployment insurance and distorting the unemployment rate — keeping the reported data lower than the actual number of unemployed.

We are truly living in the land of “suspended animation.”   And, we get it, the policymakers are just plugging holes trying to keep the boat afloat but they do need a long-term comprehensive and bold plan, which addresses both the health and economic crisis.

We suspect one is coming at 12:01 pm Eastern on January 20, 2021.

Left Is Rising

It doesn’t take a genius to figure out which direction the political winds are blowing after viewing the following photo.



See the article here

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REITs For The Right Reason

By Carol K.


  • These are my favorite REITs with fully intact dividends as of 7/29/20
  • REIT 90% payout requirement for 2020 pushed to Dec 31, 2021
  • There is no free lunch, i.e., the risk/reward tradeoff
  • A REIT really is not a bond proxy, not even the safest REITs

Most of my favorite REITs are not super high yielding as I choose to trade the reward of higher divies with a lower risk profile.  Nevertheless, their dividend yields are much higher than U.S. Treasuries and offer an inflation hedge with exposure to real assets.

Carol Ks_REITS

My filter was to first look for REITs that, as of 7/29/20,  have fully intact dividends, which does not mean that can’t change going forward.  Any change to current dividend policy will likely be announced during this quarter’s earnings release, or in Q4, depending on the performance of the economy.

COVID Disruptions

REITs pay out 90% of taxable income (REITs pay no income tax) to shareholders in the form of a dividend.  This policy was altered earlier this year due to the economic disruption caused by Covid-19  as many REITs are now not receiving full rents or none at all.

REITs have until Dec 31, 2021 to make their 90% distribution requirement for 2020.

The conventional wisdom was that the REITs which had suspended or cut dividends during 2020 would reinstate them in full or at least partial amounts or full no later Q3 or Q4 to meet this tax requirement.  However, some REITs that have cut or suspended dividends may not even reinstate even partial dividends by late 2020, which complicates their attraction as an income-generating investment.

Risk/Reward Tradeoff

As with most any asset, REITs offering a higher yield generally involve more risk.  The safest REITs with fortress balance sheets tend to yield less than those, which hold riskier assets, balance sheets, and lower credit ratings.

The above impacts the valuation metrics of a REIT, including its weighted average cost of capital (WACC).


Bearish –  I am bearish on the following REIT sectors

Hotel REITs

All the major players in this sector have cut or suspended dividends. The bloodbath has not been quite the shock.  I see nothing in this sector attractive until a vaccine is widely available, the economy improves, and folks begin traveling en masse again.  The exception is the specialized gaming hotels/casinos, which I address later in the post.

Office REITs

Though office buildings are not going away, the sector is suffering as companies were already reducing their real estate footprint before Covid-19,  we expect this trend to grow exponentially as the work from home them continues to gain steam.  Companies have discovered many job functions can be performed remotely just as well as in the office.  Even if workers still come to the office just a few days a week, the business sector won’t require the same expanses of space they did during the old normal.   The difficulty here is determining the survivors.  Even Class A buildings in AAA markets (NYC, LA, S.F., CHI, ATL, etc) will be pressed to achieve full occupancy in the future.  Trying to pick the survivors is just too tricky and risky and not worth the reward at current prices, in our opinion.

Retail REITs

There have been many dividend cuts and suspensions in this sector.  I don’t see any upside in mall REITs in the medium-term (12-18 months), and the consensus among REIT analysts is there will only be one or two healthy survivors in the long-term, one of which will no doubt be Simon Property Group, (SPG).  CBL Associates (CBL) is in forbearance with its creditors with no guarantee of successfully emerging, and its stock is trading at 19 cents per share this afternoon (July 29).  Macerich (MAC) and Taubman Centers (TCO) do have trophy assets. Still, it’ll be a rough road going forward, risky with no guarantee the dividend will make a recovery “worth the wait” for the return to normalcy.

Shopping Center REITs

Almost all Shopping Center REITs have cut or suspended dividends, even grocery store anchored shopping centers.  Logic dictates that neighborhood grocery-anchored shopping centers will survive over the long-term as most tend to provide essential goods and services; it hasn’t been reflected in the share prices, however.  There is also a huge disconnect and REITs with assets that offer many small services, such as hair & nail salons, cafes, and coffee shops, which have been hard hit.  Because a grocery store is still full and thriving with in-store shopping, curbside pickup, or delivery, it doesn’t necessarily translate that the shopping center is doing as well.  The larger grocers often make up 50-75% of rental income in these centers.

Bullish –  I am bullish on the following REIT sectors, which should still thrive in the current environment, and are still paying their dividends:

Healthcare REITs

The Healthcare REIT sector is large and very diverse.  I would avoid Senior Housing, Skilled Nursing Facilities (SNFs), and diversified healthcare REITs with extensive exposure to these sub-sectors, such as Ventas (VTR)  and Welltower (WELL).  Senior Housing has become very unattractive due to COVID.  Even though the demographic trend is positive, the market is currently rethinking the long-term safety of nursing homes.  SNFs are too dependent on the direction of the political winds, and some tend to be very reliant on Medicare/Medicaid reimbursement.  Though they offer higher yields, it also corresponds with the higher risk of individual SNF operator failure/bankruptcy or payments being dictated by politics.  A classic example of “there no free lunch” idiom

The best areas of Healthcare REIT investing are  Medical Office Buildings (MOBs), and it’s close cousin, Life Sciences buildings.  Of the MOBs, I have two potential picks, and one is a personal favorite and holding, Healthcare Trust of America (HTA), the premier MOB REIT operating in prime markets with many on-campus or campus adjacent medical facilities serving prominent academic and non-academic medical centers in major population centers. My other MOB favorite is Physicians Realty Trust (DOC).  Similar to rival HTA, Physicians Realty focuses on quality tenants, with 60% of tenants rated as investment-grade.

DOC has outperformed HTA over the past six months (DOC -8.82% vs. HTA -4.91%), but unlike HTA, which has raised its dividend every year since 2015, DOC has only increased the dividend twice since 2014.  Rent collections have been over 95% for both HTA (98%) and DOC (96%), even during this time of canceled appointments and closed medical practices. Physicians, dentists, imaging services (MRI/CT scan), and labs have primarily continued to pay their rent in full and on time.

I hold HTA and looking to initiate a position in DOC on the next pullback.

I also like Alexandria Real Estate (ARE), which engages in the acquisition, leasing, and management of properties in the Life Sciences/Pharmaceutical research/Biotechnology sectors, including top-tier academic medical research centers (like UCSF and Harvard).  I consider ARE to be both recession and COVID-resistant as these companies have deep pockets of funding.  Moreover, while office or H.Q. level workers may be able to work from home, scientists and research assistants cannot do their lab work at home and rely on highly specialized, costly equipment in temperature-controlled environments. ARE’s portfolio is concentrated in the Greater Boston, SF, Houston, and LA/SD metropolitan areas. The dividend yield is 2.4%, admittedly low, but at its current valuation provides room for capital appreciation as well as a growing dividend — a very relevant stock in the age of a global pandemic.  I am long ARE and plan to add future pullbacks.

Data Center REITs

Data Center REITs, own…wait for it…data centers.  Data centers (D.C.) are often perceived as a real estate play in the technology sector.  They house the servers,  not just tech sector darlings but almost all major companies, which rely on D.C.s to store their data.  Though it’s a growing industry,  I believe much of the growth is likely already priced in.  D. dividend yields are typically lower than other REITs at around 2.3%.  Investors could see long-term growth in the sector take off, boosting price appreciation and the total return, outperforming some of higher-yielding but lower growth REITs.  My faves in the data center space are Digital Realty Trust (DLR) and CoreSite Realty (COR).  I am long DLR.

Industrial REITs

I’m limiting my focus here to REITs specializing in single-tenant net lease warehouses and distribution centers. These properties are in demand regardless of whether buying takes place online or in a physical store as the merchandise has to be stored somewhere while in transit to homes or to local stores.  Prologis (PLD) is one of my favorites in this sector, but the current dividend yield is fairly low for a REIT at 2.3%.

I do prefer STAG Industrial (STAG) for several reasons.  STAG’s portfolio contains mostly warehouse and distribution center properties critical to e-commerce as well as regular B2B shipping (like the local grocer receiving shipments of paper towels or those, not my favorite Little Debbie Snack Cakes).  Located in all major markets, STAG also has an impressive presence in secondary and tertiary markets, and all are single-tenant buildings with an average remaining lease term of 5 years, 97% occupied at the end of Q2 2020. It’s top three tenants are Amazon, General Services Administration, and XPO Logistics.  Another attractive feature of STAG is its dividend is paid monthly, which is great for retirees or those relying on current income from their investments.

STAG released earnings on July 28 and beat on earnings and revenue.  The dividend remains intact at 0.12 per share, $1.44 annually, which yields 4.5%.  The REIT also reported that  98% of Q2 rent was collected, with 97% occupancy.

I have a position in STAG and look to pick it up anytime it dips under $30.

Neutral –  I am neutral on the following REIT sectors.

Residential REITs

I am ambivalent about residential REITs.

Recall in my May post, Back To Class: REITs 101,  out of principle, I do not invest in Residential REITs in the Single Family Home (SFH) space.  Many buy their future rental homes, often at a deep discount out of foreclosure or short sales, and perform minimal cosmetic improvements before putting the house into the rental market.  What bothers me, however, is the poor customer service support and lack of critical maintenance issues they provide, such as assuring renters have running water or repairing blown electrical boxes.  Most SFH REITs are owned directly or indirectly by Wall Street private equity firms, some of the biggest names in the business. Not my kind of capitalism,  driven by sheer greed.

The multifamily/apartment side of the equation offers much better prospects, in my opinion.  Yes, I get unemployment is rampant, many folks can’t pay rent and are facing eviction and the alarm bells or ringing of complete collapse for apartment REITs.  Not so fast, however.

My favorite apartment REITs develop and lease properties at the higher end of the rental spectrum.  Because, thus far, the overwhelming majority of the COVID unemployed are lower-paid service sector workers,  higher rent properties are not affected to the degree Class B/Class C properties are.  My two favorites are AvalonBay Communities (AVB) and Essex Property Trust (ESS). Avalon Bay focuses on high-quality Class A apartment complexes in major metro areas of California, New England, New York/New Jersey, Washington DC, and Seattle.  The major negative of Essex is their portfolio is concentrated on the West Coast, all in southern and northern California, and Seattle.  However, ESS properties command some of the highest rents and occupancy rates in each of the respective markets.

Specialty REIT 

Finally,  I am looking at Vici Properties ($VICI), which owns casino and gaming hotels, resorts, and entertainment/leisure properties in 23 locations across the U.S.  I know it doesn’t seem like a good story at this time.  Still, it’s one of those situations where the hotels and casinos are leased very long term to reliable gaming industry names, such as Harrah’s, Caesar’s, Horseshoe, and Bally’s.  It is also the only REIT in any sector, that I am aware of, reporting 100% rent collections since the March COVID lockdown.  Vici’s tenants are all well-funded companies who will pay the rent even if they have to borrow the money, which is not an issue, especially in the current financial environment.

Q2 Earnings Updates

Vici Properties: Casino & Gaming Hotels and Resorts, Golf Course properties
– Beat on FFO & Revenue
– Collected 100% of July rent
– Collected 100% of Q2 rent

Investment thesis intact after earnings

Avalon Bay Communities: Luxury apt communities in major coastal cities
– Misses Q2 FFO by 4 cents, a decline of 1.3% YOY
– Misses Q2 Rev = (-2.9%)  YOY
– Rent Collections as of July 28:  April 97.7%;  May 96.4%;  June 95.5%

Investment thesis intact after earnings, higher than peer group with the exception of Essex, which will release earnings after the market closes on Monday, August 03, 2020.

The information in this post represents our own personal opinions and are not investment recommendations.  We may or may not hold positions or other interests in securities mentioned in the post or have acted upon what has been written.  

All information posted is believed to be reliable and has been obtained from public sources believed to be reliable. We make no representation as to the accuracy or completeness of such information.


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Trump’s Suggestion To Delay Election Is No Surprise

“Don’t be surprised if you begin to hear the drumbeats of delaying or canceling the November election.” – GMM, July 19


See the article here 


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The Ultimate Scarcity Asset

GaveKal reminds us why assets typically have value.

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, or
  2. They can generate cash flows over time

We have been writing for years how the supply-side (relative shortages) has been increasingly driving financial asset values.

Also, run, don’t walk to our donut shop analogy,

The Local Donut Shop And Financial Asset Inflation

…The Fed, the Brinks Truck, has created a demand and supply shock for chocolate donuts or financial assets.  A positive demand shock by handing out cash and injecting more liquidity through its purchases.  A negative supply shock by removing chocolate donuts or financial assets from the donut shop and those of the customers in line.

All good until the price of maple donuts begins to rise, especially if some are imported from Canada with a now weaker currency,  as the mandate of Brinks company is to maintain a stable price and production of maple donuts.  — GMM, July 1st

Check out the following chart.  Is it any wonder why gold, now backed by an almost bulletproof story and negative real interest rates, is on a one-way rocket ship ride?



Hat Tip:  @TheVolawatcher

Posted in Gold, Uncategorized | Tagged , | 1 Comment

Gold’s Tower Of Terror Trade & The Coming Of Stagflation

I was just explaining to a close friend earlier today how gold can sometimes be a “Tower of Terror” trade where the bottom falls out of the price for no apparent reason.  In addition, the metal is mainly driven by sentiment around a central bank’s long-term resolve and ability to maintain the currency’s purchasing power, which makes gold just a “date” and never a “long-term marriage.”

Gold Is Going Much Higher

Though we do expect this move to be a relatively long and thrilling date, with a not zero probability of morphing into a marriage.


Before leaving for a walk tonight I see gold futures in Asian trading up to 2 percent after the New York close and fast approaching $2k.   I come back and the price had fallen almost $50 from its high trade of $1975, or almost 2 1/2 percent in a little less than two hours.

Welcome to the “Tower of Terror,”  Robinhooders.

Gold_Jul27 The Tower of Terror


The yellow metal is pretty overbought here and needs some consolidation before making its next move to $3000.

No Inflation? 

Not so fast.  There is no credit crunch and it feels, at least to us, there is inflation in the economy.  Continued accommodation will result in more inflation and central banks really can’t do a damn thing about it.


This inflationary spike is unprecedented across all comparison years and constitutes more inflation than normally occurs in a year. We show that the increase in prices mainly happened in the first week of the UK’s lockdown (which began on 23 March 2020), and that a key driver was a reduction in the fraction of promotional transactions as retailers cut back on both price promotions and quantity discounts. This fall in promotions contrasts with the Great Recession, during which consumers purchased more on sale (see Griffith et al. 2016 for evidence in the UK, and Nevo and Wong 2019 for the US).

Second, we show that declining product variety strengthens inflation. Typically, inflation between two successive periods is computed by comparing the prices of products available during both periods. However, consumers’ effective cost-of-living is also impacted by the removal or entry of new products; all else equal, if less products are available consumers will be worse off. In Figure 2 we show the evolution in the number of unique products purchased per week in 2020 and in preceding years. Prior to the start of lockdown, and similar to previous years, the number of products sold in each week is stable. However, from the beginning of lockdown, there is a fall of around 8% in the number of products we observe purchased. This points towards a reduction in product variety, which erodes consumers’ effective purchasing power 

…What lessons about the dynamics of inflation can be drawn from these findings? Lockdown coincided with unusually high inflation, which was experienced by almost all households and in almost all product categories. This finding is noteworthy given financial markets expect the COVID-19 pandemic to be a disinflationary shock (Broeders et al. 2020). The pervasive nature of the inflation, along with the fact that it is observed even in product categories with declines in output, point toward a risk of stagflation. 

It is naturally too early to say for sure whether persistent stagflation will materialise. While the higher price level has persisted for several weeks, the inflation spike coincided with a one-time event, the beginning of lockdown; in addition, we do not observe the entirety of households’ consumption baskets (e.g. rents and services are not included). Nonetheless, it is crucial for central banks, fiscal authorities, and statistical agencies to closely monitor inflation risks going forward. Our work highlights the advantages of real-time scanner data for this purpose. One can track changes in spending patterns for disaggregate products in real-time and observe changes in promotion activity and product variety, all of which are important drivers of inflation and are typically overlooked by statistical agencies. Voxeu

Yes, the study was done in the UK but the laws of economics know no borders and the thesis rings true in America too.


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