The housing recession is here

Happy Friday!

The worst part of this job is keeping up with politics and elections, but it’s important because the clown show in D.C. sets the rules of the game. Midterms are coming up in less than three months, so I wrote about the influence of politics on investing (reach out if you want a copy).

Just two quick topics to discuss today…

Housing recession

Lots of housing data came out this week, and it’s all saying the same thing – housing is in a recession. 

It should be no surprise. Look at the charts below. The 30-year mortgage rate is up 80% in a year (at one point, it more than doubled). Add to this the squeeze homebuilders are feeling thanks to rising input costs, and it makes a lot of sense to see so much weakness right now.

But is this such a bad thing? Would we rather see prices rising by double digits every year? Is that really a better outcome for the economy and country?

Personally, I welcome a slowing housing market because it shows the Fed that they are achieving its goal. Maybe, just maybe, this will encourage them to pump the brakes next year. If so, that elusive “soft landing” could become a probability.

Housing is watched so closely by the Fed because it’s critically important to the overall economy. Anyone who has bought a house will tell you that the purchasing has only begun when you sign that mortgage. Lots of maintenance and other expenses keep people like plumbers and landscapers employed.

And thanks to the advent of HGTV and other legalized brainwashing created by nefarious real estate agents that have convinced America that every dollar “invested” in a home will magically transform into $1.40, homeowners spend a ton of money on renovations thinking that someday they will get it all back.

In all seriousness, name any other industry where it’s lawful for television producers to literally make up numbers and combine them with valuation techniques that wouldn’t even fly with the WallStreetBets crowd. But somehow, HGTV gets a hall pass. Crazy world we live in.

Anyway, as prices start to fall, it will almost certainly slow down the overall economy. And like I said, this is probably a good thing because the Fed will feel like they’re doing their job. 

WeForgot about WeWork?

There’s a venture capital firm in the People’s Republic of California called a16z. It’s run by Marc Andreessen (founder of Netscape) and Ben Horowitz. Both are regarded as two of the most brilliant minds in technology. In every way, they are smarter and more successful than I could ever imagine being. 

This week, a16z issued a press release announcing a new investment of $350 million into Flow. This is a new company founded by Adam Neumann – the same Adam Neumann who founded WeWork in 2010 and was effectively fired in 2019 after their failed IPO.

Earlier this year, a16z also backed Flowcarbon, another startup co-founded by Mr. Neumann that issues cryptocurrencies backed by carbon credits (no matter how many times you reread those last six words, it will never make sense).

I’m a little conflicted here. On the one hand, the beauty of capitalism in this country is that founders can fail and still get mulligans. I’d even go as far as to say that this alone could explain why the U.S. dominates in entrepreneurship and innovation (in most other developed countries, it’s one and done).

Think about it. Most businesses fail, and the lessons learned through these failures create the foundation for more robust ideas and better execution. Sources of capital know this, so they are often willing to stay committed to founders who they think will eventually get it right. 

But on the other hand, this guy? Seriously? You want to give $350 million to the guy who, for all intents and purposes, took billions from SoftBank and dumped it into private jets and Don Julio 1942? The guy who trademarked “We” and then sold the rights to WeWork – the company he was running at the time – for $5.9 million? The guy who bought buildings and then leased them back to WeWork to create a near-unquantifiable conflict of interest? The guy who inspired an Apple miniseries?

Ok fine. Maybe a16z forgot about all that, but there’s NO WAY that one of the world’s most successful and prestigious venture capital firms was out to lunch during their failed IPO.  Right? Don’t they remember that Neumann and his wife were the ones who were going to “elevate the world’s consciousness” through shared office space and free beer? 

Because if they don’t, I’d be thrilled to send them a copy of WeWork’s S-1 filing back when their venture capital peers somehow valued the company at $47 billion. I’ll even include this masterfully written takedown from Vanity Fair just so they get the full picture of what he did with all that VC money back in the day.

There are too many questions here, so let’s just make them rhetorical and keep assuming Messrs. Andreessen and Horowitz know what they are doing.

Enjoy the weekend…