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😖 Housing havoc, carmageddon + more
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😖 Housing havoc, carmageddon + more

What investors need to know this week plus one good investment

Brecht Palombo's avatar
Brecht Palombo
Dec 18, 2022
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Here’s what I’m watching in the markets and investing this week (about 5 minutes)

😖 The fed just won’t quit it

📉 The market hates it

🤑 The dollar is taking a dive

🏚 Real estate’s hard spot

🤦🏼‍♂️ Auto finance is a looming disaster

🤖 AI eating the world

☀️ Here’s what I’m investing in

Ready? Let’s go ⬇️

Inflation and the Fed continue to be the main story.

CPI came in at 7.1%, lower than expected, but the Fed raised interest rates 0.5% anyway this week and the markets hated it.

Macro Compass has a great breakdown of where we’re at on that front.

The Macro Compass
Don't Fight The Fed
Listen now (13 min) | (Audio file now fixed) Hi all, and welcome back on The Macro Compass. In this piece we are going to cover the Fed meeting and its implications for markets. For free. One last time. So, a kind reminder: if you find value in the timely macro analysis and portfolio strategy The Macro Compass provides, this (and much more) will very soon require a…
Listen now
2 years ago · 191 likes · 51 comments · Alfonso Peccatiello (Alf)

Interest rates are now at 4.5%, the highest since November of 2007, the beginning of an epic global financial crisis.

The Fed is targeting 5.1%

📈 The market’s response to the half-point hike was that the S&P bounced off a strong downward trend line for the 3rd, really 4th, time this year with a double top (bearish reversal) at $4095.

RSI, a momentum indicator, suggests that falling prices will continue.

The next major support is at $3720 and below that $3650.

I was stopped out of some long positions in SPY and the Russell 2000 but I’m still holding calls for March that I bought at the lows in mid October.

💵 The dollar is off its peak by almost 9%.

🏚 Real Estate is on the struggle bus and its not going to get better soon.

Altos research does a good job of breaking down where the housing market is at in this video.

❌ It is not a good time to be a flipper.

This tweet below is very reminiscent of the last housing crash for me.

In the years running up to the GFC my clients had been flipping anything they could get their hands on.

When the music stopped it came to a screeching halt and suddenly I was auctioning unfinished projects.

Twitter avatar for @seandsweeney
Sean Sweeney @seandsweeney
$850k teardown house you closed on June 1. New build comps in area $2-2.5M. Market turned 180 degrees. Can’t sell for what you paid. Been on market for months. Can’t rent bc market flooded with SFH rentals. Other than keep plugging it $4k/mo, what’s your move?
1:56 AM ∙ Dec 12, 2022
233Likes13Retweets

“Suddenly” might be too strong though. Real estate stress does not manifest like other markets. It takes much longer. Borrowers have to go into default, there are notice and waiting periods, legal proceedings, bankruptcies…

If the Fed were able to engineer a soft landing (they never have EVER) then even a gentle mean reversion implies a 20% drop in home prices. The best case scenario is that we hit that long term trend line (below).

I have yet to have anyone show me how we don’t go back there and probably much faster than last time 👇🏼

We are likely 2-3 years, maybe more, from the bottom in residential real estate. If it doesn’t cash flow, or not enough, and you might sell in the near future then I think your best pricing is now and not later (not financial advice).

🚙 Its kinda crazy to watch this car market fiasco unfold.

I don’t remember this happening in 2007 but maybe I blocked it out. My friend Scott shared this.

Twitter avatar for @GuyDealership
CarDealershipGuy @GuyDealership
This morning I discovered something *extremely* alarming happening in the car market, specifically in auto lending. I'm now convinced that there is a massive wave of car repossessions coming in 2023. Here's what I discovered (and what no one knows):
4:50 PM ∙ Dec 16, 2022
38,087Likes9,154Retweets

TLDR is that friggin lunatics (like millions of them) took out 6 and 7 year car loans, with payments over $700 on average.

Now lenders are engaging in very risky lending just to keep product moving and could be setting the industry up for a massive round of defaults.

🤖 AI and Chat GPT is taking over the world.

Twitter avatar for @jbrowder1
Joshua Browder @jbrowder1
Anyone with a speeding ticket hearing coming up, please DM me. We want to build a @donotpay bot that listens to the court hearing via your AirPods and whispers what to say with GPT-3 and LLMs. We just want to experiment and will pay the ticket, even if you lose!
2:03 AM ∙ Dec 13, 2022
11,482Likes1,073Retweets

If you haven’t heard about Chat GPT yet then you need to take a moment and look up.

This new AI interface from Open AI (backed in part by Microsoft) is an absolute game changer. The multitude of tasks that it can accomplish in seconds, rather than the minutes or hours that it might take a human, is astounding.

There are a great number of jobs that will, quite obviously, be completely eliminated in the not-too-distant future.

I plan to dig in more in a future issue but I can tell you that in the last few weeks the speed with which I have been able to create business plans, workflows, pitch decks, contracts, and functioning code with Chat GPT is amazing.

It might be prudent to be thinking about what types of things cannot be outsourced to AI or else think about how you can begin to implement AI now to gain an edge through arbitrage while your competitors catch up.

Analysts, designers, developers, writers, attorneys, product managers, and more - you are all on notice.

(Side note, I bought a little of this new AI powered ETF $DIP. I guarantee its a better trader than I am…)

The whole face of work changes forever over just the next couple of years. Seriously, rethink everything.

☀️ Here’s Where I Invested this Week

I did make a big(ish) investment over this past week.

As I mentioned before I am most interested in investing in experts within a niche through which they grind out a return employing a vision and expertise.

Ok, maybe I didn’t say it exactly that way but that’s where I’m investing right now.

This investment checks a number of my boxes and that’s why I jumped in. Here were some of my considerations:

  • Significant funding pouring in - a rising tide

  • Expert sponsor with almost 2 decades of success

  • Insatiable demand for the end product

  • Strong regulatory momentum

  • Opportunistic returns 🤩

  • Short wait for return of capital

I couldn’t pass it up.

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