(New York)

The credit market taught investors a very good lesson in the Crisis (not that many of them were paid attention to). One of those lessons was that the first signs of weakness in the market should be taken seriously, as they can be indicative of a pending meltdown. This occurred in 2007 before the cataclysm in 2008. It appears to be happening again now, as both US and European credit marks are showing some fault lines. For instance, the downgrade of GE is seen as a sign of weakness very similar to what occurred with Ford and GM in 2005.

FINSUM: There has been an extraordinary credit boom since the Crisis and there are bound to be consequences. The question is what the extent of those consequences will be. The market is starting to feel a bit like musical chairs.

(Washington)

The market has been worried about trade for almost half a year now, ever since the rhetoric surrounding it began heating up in June. It has been a major factor in several volatility events in stocks, including in October’s big selloffs. However, a meeting this weekend has the potential to put those worries to rest. Alongside the G20 summit this weekend, Trump and Xi will meet for dinner to discuss the trade tensions between their countries.

FINSUM: Trump and Xi seem like two men that get along well personally, but have an immense amount of competing interests that they need to represent. That said, we have faith that good personal relationships can help bridge such differences. (e.g. see the Cold War)

(New York)

The Wall Street Journal says that wealthy New Yorkers are having a hard time believing that real estate prices are falling. After a decade long boom, they have difficulty believing home prices are actually dropping. Nonetheless, they are. Anecdotes abound, especially at the high end of the market, of residents losing millions even after ten-year holding periods. The big question home owners need to be asking themselves is whether New York is a bellwether of what is coming in US real estate, or whether it is just suffering from its own idiosyncratic problems.

FINSUM: In our view, this is mostly a unique-to-NYC problem. It is a combination of oversupply (from new builds), higher tax rates, lower demand from foreign buyers, and rising interest rates.

(New York)

Jack Bogle, the founder of Vanguard, is a legendary name is investing. Not only did he found and grow one of the largest asset managers in the world, but he has a habit of being right when he predicts returns. Well, he has just made another prediction, and unfortunately it is not one investors will like. He thinks returns over the next decade are going to lag their historical levels badly. His forecast is that investors can expect a 1.75% net return with a 50%/50% stock-bond portfolio over the next decade.

FINSUM: If this call turns out to be right, it will have huge implications for retirees and pension funds, as “safe spending” rules and total returns for pensions will be devastated. That sad, we think forecasting that far out is all but useless.

(New York)

It would be easy to think that real estate is headed towards a buyer’s market. Inventory has been increasing, prices gains have slowed or disappeared, rates are rising, and prices are very high. However, despite all of this, many real estate experts think 2019 will still be a better year to be a seller than a buyer. The reason why is that inventory may only increase slightly, which will keep prices relatively high and not lead to massive price cuts like in the last housing downturn. A recession still looks a little way off, which could also insulate prices as the employment market stays tight.

FINSUM: We think the housing market is definitely going to see prices stay flat or fall next year, mostly because demand is falling as rates rise. However, we do agree that the bottom is not going to fall out by any means.