YouSaid · the spoken record

Warren Pies

lines on the record: 78
first: 2023-10-30
most recent: 2023-10-30
sittings or episodes: 1
sources: podcast

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“Yeah, it's been awesome watching your show take off and just been it was really an honor to be invited on so early. So cool to watch that happen and I really just think you should, I noticed you follow your curiosity and to me that's the key is following your curiosity. If you do that then you'll continuously learn and that's what this is all about. Markets are all about that. As far as 314 goes, you can follow me at warrenpies on Twitter or at 3F underscore research. That's the company Twitter handle and then the company website number three, the spelling out 14 research.com and put your information in we are in an institutional research provider. But so if your institution get in touch with us and we'll send you some sample work and see if there's a fit.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Maybe a little bit, but I think the more logical place to go with the conclusion is that the Fed does step back into the bond market before this all is said and done. You know, I think that's probably more likely is that they restart QE at that point in time. And the gap that's been left by the Fed that's in that market, they come back and fill it. So to me, that's probably the most logical conclusion for how this plays out in a real true recessionary scenario. But I guess we'll find out.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Normally in a recession, the deficits go up, which is stimulative for the private sector. Maybe they go up because people go on unemployment and that's an automatic stabilizer. And then the government funds that with bills, so short-term thing. So the demand for duration is high because the economy is slowing down and entering or already in a recession. And the supply of duration does not go up that much because it's funding itself with bills. But what's going to happen now? So, I mean, do you think it's possible that I mean, some people go, and I don't know, I consider this somewhat extreme view, that view as enters a true recession, a full-blown recession, that no one argues it's not a recession, that bonds won't rally or could you have a huge sell-off? Are you willing to go that far?”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, it's all I can say is you don't end up usually with these deficits and this level of bills issuance when the economy is at full employment. So what happens when the economy is no longer at full employment and tax receipts are starting to roll over hard? You can do the math yourself. Everything, all this, all the deficits and all these things we're talking about gets worse and these problems compound.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Historically, the deficit blows out when you go into these situations and rates fall. I think there's no telling what happens this time around. I'm short on conclusions just able to point it out and say this is really we're in uncharted territory. We've never seen this before.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Pop up maybe into the mid 20s or whatever. And the stated range for by the Treasury for that number is between 15 and 20% of total debt outstanding should be bills. So when that happens, it's anomalous and they work to get it down. The thing we're seeing now, similar to we're seeing a huge deficit while unemployment is low, we're seeing a huge amount of bills outstanding, 22% of total debt is now bills outstanding while unemployment is low. And this is also anonymous. So we're running this deficit. We're funding it with short-term bills and the economy is still at full employment. This is a pretty, I'd say this is a pretty dicey backdrop because when tax receipts do roll over, when employment does start to fall off, it's only going to worsen the deficit. Now, yeah, we'll have some, we should have some relief on the interest rate side at that point in time.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“And the tax receipts are theoretically at closer to a peak than a trough. So another way to see this is the much talked about bills versus coupon issuance and funding that the Treasury and Secretary Yellen have decided to fund the government with. So usually, again, going back to how deficits usually expand during contractions, during those big deficit moments, that's when the government typically decides to fill the gap with a load of bill issuance. The bills market's much deeper. So they come to market and fill those deficits in with bills. And so as a result, around these periods of high unemployment and low tax receipts, you see the percentage of bills outstanding of total debt.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“The causes are all the stimulus that we spent that's now coming through the system following COVID. And of course, interest rates is a huge factor as well. So interest rates are about half of the deficit, you could say right now. The interest rate increase has been about half of the increase in the deficit. The stat I always say is we're running a deficit of 8.5% of GDP right now. unemployment rate is at three six, three, five right now, whatever. It's totally anomalous. There is usually a strong relationship where deficits blow out like this when the economy starts contracting, when unemployment rises and tax receipts fall. This is a totally different beast where we're running these kinds of recessionary deficits while economy is at full.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“120 oil would do the trick for a final topic of warren. Let's talk about the pro-cyclical fiscal deficits. How extreme is the credit card that the U.S. government is running? Although unlike everyone else who has a credit card, the US can print its own money. just how ahistoric is it for”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“On them or the flow of oil from the non stops, you could get a big spike, you could get a spike like we saw last year. And I think the economy is more vulnerable at this point in time and would not be able to survive that at this point in time. So 120 would do the trick at this point to me.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“No, I don't think we need it. I think under the surface, rates are higher. Like you said, in the economy's farther along, whether you want to look at excess savings or savings in general, many of these factors that held the market up and held the economy up have been whittled away. So I don't think it's a matter of like, well, there's a difference between saying oil can help push the economy into recession and oil can flat out be the main cause of the recession. I'm not looking for that kind of a cycle here. And it could happen. Let's say we end up going to war with Iran or something like that and Rani and exports have really ramped here recently. It's been one of the things that's kind of helped keep the market balanced during this post-Ukraine time period. And so let's say Iran gets pulled into this war and sanctions come down harder.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“I think what has confused me so often and what I often see confuses other people as well is confusing something as a cause versus something as a consequence. And there's oil and then there's rates. People say high interest rates are contractionary and they are they constrain economic activity at the same time. They are often the result of a boom. So a boom causes interest rates to go up and then interest rates causes interest to go down. And say a boom when there's huge amounts of demand causes price of oil to go up and until it's too much and then the demand is not there. It destroys demand. What level of oil prices if we're around closer 90 bucks for oil now? What level of oil will destroy demand because it destroyed demand last year at 120, but not enough to tip us into a recession. So do we need more than that to tip us into a recession?”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“This is the only history we have to study. Higher oil prices show up on the scene of the crime very often. So if you're going to have one of these recessions, you usually end up with a little late cycle push from oil. And there's, you can zoom in. There might be a reason here, a reason there, but that ultimately is a causative factor. So it's not like this outperformance in hard landings is totally unrelated. It's related. Oil higher oil prices generally tend to happen around these recessions and that's good obviously for energy stocks. Soft landings, like I said, is the other factor. If you're going to get a soft landing, you need a few things. I think you need the Fed to be ready to cut interest rates fast. We call it a hyper reactive Fed. But you also need energy prices to stay cool. And that's why I think when you get into a soft landing, you see energy sector underperform.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Eventually, no, I mean, eventually the duration takes over. It's a matter of that time leading into it. So where are we right now? We're lay cycle. What comes next? A landing, a soft landing or hard landing? That's what comes next in my view. And so if the whole market's price for a soft landing, you want to overweight those assets that are priced for the hard landing. And that's what I think is for energy. Why is it that energy outperforms going into a recession? Part of the reason is if you look at there's not that many recessions to cover. You and I, I think, talked about this before I've heard you talk about this with a few guests, I believe. But it's like you go back, it's 2020, it's COVID, it's 2007, 2008, it's 2001, 1991, which was the Gulf where you go back through the 80s and you have to go back into the early 80s and late 70s for your next recession cases. So they're very rare events. But when you start studying them,”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“In an energy underperforms the rest of the market going into soft landings. So it's a hard landing asset, not a soft landing asset. If you look at the rest of the market right now, even after the sell-off, I think the market's still priced more or less for a soft landing next year. Look at how earnings are priced. We have a 12% earnings growth in 2024, another 10% earnings growth year in 2025. A smooth line drift higher in earnings is a soft landing in my view. So the market's price for a soft landing, you need to diversify by finding assets that outperform in a hard landing. And energy, I think, from our research is one of the best candidates to outperform going into those hard landings and recessions.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“We have and continue to recommend an overweight energy position. I think within your equity sleeve, you need to be overweight, the energy sector. So energy is like 5%, S&P 500. I think you should at least double that in whatever your equity exposure is in this market. It's because energy is diversifying.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“We were overweight commodities, now your underweight commodities, which obviously excludes oil. So you're somewhat bearish on oil, although obviously there's a huge right tail risk of geopolitical stuff, but you do like energy as a sector within the S&P as a hedge. Tell us why, as well as your thoughts on How oil and energy does going into a recession, the typical view is that, oh, when there's a recession, the price of oil is going to tank.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. Yeah. The bond market is a basis trade, and this is just much more of an outright bet in the oil market. And if I had to look at one timing indicator in the oil market, it would be our futures, our hedge fund futures positioning. They're hedge funds and CTAs within the CFTC, they call it the managed money group, which is really the fast money. Our strategy, we call it fade the CTAs. So when they get to extreme and you can kind of see it in extreme, whether it's on the long side or the short side, you just want to go the other direction. Obviously, we have a view on fundamentals because it's just going to, that's going to supercharge whatever the fundamental backdrop is. And so yes, it's not like the bond market. It's much more of a directional bet.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“So the hacienda hedge, if folks can tell you, you are an oil market veteran, that's your first and then you brought it out into the macro. Oh, so hedge funds being short? Is it in the oil market? Is that actually a real phenomenon? Unlike in the bond market where there's short a ton of bond futures against being long cash positions to harvest a sort of discount or a premium in the oil market, are they actually making speculative positions? So in other words, they are directionally exposed. So when it rallies, they have to cover.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“So the backdrop is kind of bearish for the end of the year, but then, of course, you have the geopolitical strife that's really come in and interrupted the cycle that we're in right now.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Be bearish. The other factor is when you come to this part of this part of the year for oil, it's a kind of a negative time seasonally. And there's reasons for that. You end up with Mexico doing their kind of infamous hacienda hedge where they go out into the market and start buying puts for all their oil production. So the banks and dealers are selling a bunch of puts at this point, which creates this kind of negative gamma impact. So if the price starts going down, they have to sell futures in order to offset that exposure. And it creates this kind of seasonal air pocket underneath the market. And when you do that, you combine that with the fact that hedge funds are basically, they got overextended short and then clip turned that around by September. They were overextended long.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“What do we think about oil here? Our model is neutral. We were long from beginning of July to middle of September. And that was from like low 70s to upper 90s. I think that the Saudis wanted to, they've accomplished largely their goal, which was to teach the short sellers a lesson here so that the speculators had been betting on this recession we're talking about. They had gone short oil to express this bet. The Saudis were like, no, we're not going to let this fly. So they made OPEC in Saudi in particular withheld a ton of oil from the market. They're still holding this oil off the market. And they've created these kind of artificial deficits, which eventually the data force, these hedge funds, to cover their positions and drive the price up. But I think that trade is largely over at this point in time. And so the next thing you have to start wondering about is how does the oil that's been held off the market get back into the market? So it's kind of a bearish dynamic now. We went from a bullish dynamic to a bearish overhang at this point in time. So if I had to lean in a direction, I would”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Were artificially low due to China being slow to really reopen, like people had expected. And so those two things were kind of stimulus for the economy. And that's all behind us at this point in time.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Stimulating through the income channel so all the rich people with money in their money markets funds are getting income growth through the higher rates the Fed funds rate and the reverse repo and things like that that are that are flowing into that part of the economy. The borrowing channel is being stimulated because the longer term, five years and out, those rates were falling back then. So to me, that was the core of the stimulus that caused this main relic reacceleration in the economy coming off the end of last year. You coupled that with the fact that oil prices continued to go down. So China's slow to open economy earlier in the year kind of was a tailwind for us. They were exporting that deflation away. And so those are two factors that really helped the economy. I think interest rates were held down due to the lack of supply in the first half of the year and oil prices.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“In order to answer the question properly, you have to go back to the 2022 bottom and say, okay, what really happened off of that low? Why did we see things like retail sales spike and payroll spike coming into this year? Because if you remember, we had that blockbuster retail sales number early this year and everyone was like scratching their heads. And then we had the AI craze and things like that. So really what happened in my mind was we had the FedJAC short-term interest rates back at the end of last year. And then we had, of course, by now everyone knows yell in, make the decision to fund the treasury by issuing bills and notes or bonds. Then we had the debt ceiling, which caused the Treasury to spin down the TGA. This was a stealth stimulus because in fact, when the Feds hiking short-term rates, but the back end of the curve is being held down by all these factors, you have what I think is this perverse stimulative environment for this economy because you're”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“That's true. We've had fiscal tailwinds. That's also true, but monetary policy, the movements of the yield curve, loan growth, CNI loan growth, the leadership within the stock market.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“You're asking whether we're re accelerating here is basically, I mean, if you take that at face value, there is some kind of reacceleration going on. I mean, that's just, it's kind of undeniable that there is. I don't think that it's going to be sustainable. Q4 already looks pretty weak relatively speaking. So GDP growth, I think that the consensus estimate for GDP growth in Q4 is just over 1%. So there's a pretty big reversion back here coming ahead of us. And if I had to guess why did we have the recession already or was the slowdown in 2022 and are we on the other side? That's been something we've looked at from a lot of different angles and I would say no. I don't think that we have. If it was, we've looked at soft landings and how to soft landings occur. The one thing that we had was the decline in oil prices has been a tailwind.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I completely agree with you. All right. We agree that the US economy has defied the near consensus recession expectations of a year ago, but are the folks who take that and do they take it too far when they say the economy is reaccelerating from a trough of last year? And there's some superficial data to suggest that. For example, real GDP advanced for Q3 quarter over quarter inflation adjusted five percent. So if we have 5% growth and then inflation is at what 4% or somewhere around there, that's 9% growth. Clearly, that's not only not a recession. That is a boom.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“For right now, I don't think I'm not making any, I'm definitely not trying to make an argument that any of the data we've seen right now indicates we're in a recession or going to have a recession before the end of this year. I don't think that's a, I don't think that you can make that argument. So I agree with you. But all I'm saying is that looking out and say, eight or 12 months from now, just because we had a strong payrolls report last report doesn't invalidate this forward recession idea.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Numbers in the year before recession, and you actually have quite a few of them historically, so growing the economy by 300,000 jobs in a month, in one of the months before a recession is totally normal, actually.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“A prediction on economy or complex systems like this, there is path dependency. And one of those things is asset prices. So we've seen a 10% decline in the stock market now. We've seen bond prices as yields go up, bond prices going down. We're seeing house prices start to soften, given the dynamics we just talked about. This wealth effect is real. And it will impact consumer behavior going forward. And so I think that when you go forward, we're definitely not in a recession right now. But just because we've seen job growth in the last, say, nine or ten months, that's non-recessionary, doesn't mean that the call going into Q2 is invalidated. In fact, we did a study. We looked at blockbuster retail sales and blockbuster housing.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we're not in a recession right now. I've had that debate with people and we have that, our scatter plot of looking at what we call an event study where we look at how do overall total non-farm payrolls react going into a recession and through the beginning parts of the recession. And in the pattern we've seen over the last year, it looks nothing like any recession we've ever seen. So it would, I think it's really in a difficult to make an intellectually honest argument that we're in a recession right now or that we've been through on or anything like that. So I totally agree with you. If anything, I would say our call is going to be too soon. You know, the last payroll report was strong. We just came through a Q3 GDP report that was showing the economy growing at like 5%. So the economy is robust, but there's a path dependency. Like all these things when you're making.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“And then looking at the general labor market, the level of jobs that we are adding now, which is in the few hundred thousand, would that put us with regard to previous recessions? Because I would say it's exceptionally unlikely that, for example, we're in a recession now or that a recession starts in December because you're a professional data analyst, but I just put together my own little Excel spreadsheet and it shows that like if a recession were to start in Q4 of this year, it would be the only recession in history where the US was adding this many jobs per month, you know, two months before.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“And coming into this that we can, you can run a regression rate, which we have a little model that shows how many units are being built, the mix of units between multifamily and single family, and what's the expected number of employees based on that mix of units under construction. And really, for up until recently, it tells us that there are fewer employees than we would expect given the housing activity that we have in this country. And that's just another way of saying this is a tight labor market. So the first stage of this decline has just been to loosen that employment. We went from really tight to loose to we are seeing the first stages of residential construction job losses. And that's just, it's a long process. It doesn't happen overnight. And those are the factors that are kind of holding it up and keeping it from moving quickly.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Well, this gets really complicated, but the bottom line is the market, the labor market has been exceedingly tight. I mean, first off, we really skip over it whenever we have these conversations. But if you go back, I mean, we've underbuilt houses in this economy really back since the GFC. And now you have demographically you have a huge bulge of 35 to 44 year olds, the millennials basically coming into if they're going to buy a house now, then win. This is their prime home by years or they want to start a family and all those things that come with them that life cycle. And so the market starts from a very tight perspective. And then we had reduced immigration for many years during really the Trump administration. And so the labor market for construction has been so tight.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“I think that on top of economically sensitive, it's how much has a part of an economy, how is that doing, and then how much is that representative of the broader economy or how many people are employed? And the perfect example is the existing home market has a complete freeze. So it is a very tough.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“That's re accelerating. And as these rates go up here, I think you're going to see single family. And if they don't, then we're going to be wrong about a recession called, we're going to see single family starts fall even more.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“If you think about a multifamily unit, it's a building with boxes in the sky, more or less, right? And so they're generally smaller. So you might have more units as far as a number is concerned, but there are less workers per unit. And that's how the data comes in. And so single family home is, you know, your typical whatever 2,700 square foot house, I think is the average right now and three bedrooms, two bathrooms, garage, all that stuff. So it's about 3x the number of workers to build and complete a single family unit. And so that's where, in our view, if you gave us one number, what's the most important single family starts is really that most important leading number for this whole funnel that we've created going into recession. And they've gone from $100,000 per month to about 70,000 per month over the last year. So that is not a market.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Time is the golden handcuffs of low mortgage rates have kept everyone. And people know this at by this point in time. The existing home market is totally locked up. And so that has been a major factor. We've had the buy downs. And so to me, this is really a market that's shown resilience and there has been mistaken for reacceleration. And it's really just a matter of time and resilience. As far as what segment of the market is most economically meaningful, the way we look at it again, housing jobs and a single family unit employs about three times as many people as a multi-family unit. And so that's where is that?”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“They're unsustainable, so they're it's ultimately just there is no difference in a mortgage buy down, economically speaking, to a builder when you really just strip it away from just discounting the price of the house. It's just an incentive and it's how you structure that incentive and gets people into houses. And they've done other things, they've pulled other levers like making houses smaller and a little cheaper. And they can do that up to a certain point. But I do believe that from our analysis that 8% is about where you run out of runway for these big publicly traded builders. I think that's why you've seen their stocks really, their stocks ran through the year and then mortgage rates cross into this kind of upper severance, lower eighths level nationally. And they've been murdered. So to me, I think the market's telling us that our analysis is correct here. Like you said, the other things that have held single family up at this point.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Warren so people say uh eight percent is going to slow down the housing market or seven percent mortgage rate is going to slow down the uh housing market to the extent that it hasn't it's because home builders are eating the loss they're saying oh we'll give you a 4 percent mortgage or we'll you know we'll take the hit of the spread between the 8 percent and the 4 percent as well as the fact that the existing home market is the volumes are down because everyone wants who has a low mortgage is going to stay stay in their homes but the buy downs are unsustainable”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Single family has held in mostly because if you think about single family home market, public builders who their stock's been on fire. So you think about Lenar Polte, DR Horden, they make they produce 50% of single family homes in the United States of the traded builders. They are able, they finance those houses themselves there. And so they're able to buy down the rates. That's been a big factor. So they're able to, it's ultimately just an incentive. You can see this in builder margins. And this is why we think that as mortgage rates hit 8%, that's where the margin that's available for these builders to buy down those rates gets impacted. If you listen to the calls, the builders say, okay, this is where we're going to start backing down on activity. A lot of things happen around this 8% mortgage rate.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“For our audience, multifamily is mostly apartment buildings, single family is just houses. So the leading indicators for the residential construction are housing stars for multi, what you said, are down as well as single family. So just regular houses. Tell us why has the strength in the single family housing market been so strong in the face of high mortgage rates? And of course, what we're talking about when people say home builders, they're talking about single family homebuilders. And then which has a bigger economic sensitivity, multifamily, commercial real estate, a bigger topic, or the single family home builders. And also earlier you said buy downs are down. What do you mean about buy down?”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“And I know that's less exciting than saying, aha, I know this when the recession is going to come, but there is no other way to navigate a late cycle macro environment and have your framework taken the data and adjust as that data comes in. And so our chosen framework is definitely the housing market though.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“By a crazy amount here two months ago. And so to me, that's people say, what's breaking in the economy? Well, I think multifamily is breaking. That's one of the things. That is monetary tightening showing up. There's a lot of the fiscal dominance stuff. I know you've talked to folks about it. There are some people who believe that the Fed's powerless to tighten. Well, you can see it in the housing market. You can see it in the multifamily lending. You can see it in multifamily starts. And so that's a big part of it is like we're seeing starts fall. We're seeing multifamily starts fall. And that flows into the units under construction. And eventually it's just a matter of time before that flows into the housing jobs. And so that's the chain of causation that we're watching. And like I said, instead of having a point in time that we're just going to get married to, we want to have a flexible framework that takes in this data.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that would be the official start date, and that on average is six to 12 months after the recession start is when they declare it. So if everything went according to historic script, then you enter a recession sometime in Q2 of next year, and then the NBA tells you that officially somewhere between the very end of next year and the beginning of 2025. So that's the amount of time we're talking about before you actually know if these calls pay off. And so you have to wonder, sometimes you wonder if there's how much utility there is. But I do believe this is a cycle where having a view on recession is going to make a difference. What we look at to give you the timing more.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Those things stop around that point. You can't get the buy down math that's worked for these builders and other factors that have allowed this housing market to stabilize are starting to kind of melt away at this level of interest rates. And so I think it's now a matter of time.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“To figure out when recession is most probable, and that points to, let's call it Q2 of 2024 at this point in time. And why has that call been delayed and why has the economy held in so well? I think it goes back to some really well documented reasons, the fiscal policy has kept the market much stronger or the economy much stronger than we've ever seen. The pro-cyclical deficits never seen 8.5% deficit as a percentage of GDP at the same time, unemployment's below 4%. We are off the map. These are uncharted territory for us and for the economy. So it's very, it's uncertain times, but we're pretty confident that at 8%, the things that have carried the housing market forward, mortgage rates.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“That leads us to this housing market, and specifically to jobs within the housing market. So if that's your framework, that is our framework, you start modeling out what's happening to the housing market and when are we likely to hit that 8 to 10 percent threshold and we're down from housing payrolls, housing construction payrolls peaked in January and we have trended lower. So I think that is now we've had the last last payroll report, it's hard to sugarcoat it. That was actually a head scratcher and it showed some job additions across the board and the negative revisions is another thing we've been watching. We got positive revisions last time and so it's not a straight line, this data and you have to have a framework more than a projection that works. And our framework says let's look at what's happening with the housing economy. Let's look at what's happening with residential construction jobs and work backwards from there to”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT
“Anyone who's predicted recession has been burned. And so it's a tough call to make. But just following our models and the way things work historically, I do believe that recession is more probable than usual in our models point towards middle of next year as when you would be on, I think, peak recession launch. And the way we do that is we look at the housing market. I think our view is that the housing market is very central to the recession call to the US economy, to U.S. consumer behavior. In every major modern recession has been led by declines in residential construction payrolls. So housing construction payrolls. And we really see about an 8 to 10 percent decline in those payrolls before the economy rolls in recession. So we're trying to find something that leads the economy.”
2023-10-30 · Forward Guidance · “We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk · IDENTIFIED FROM THE TRANSCRIPT