Good Thursday AM,

Bonds continuing to follow stocks. Early a.m., equities were up and bonds looked weaker. It has been a roller coaster of a week for sure. Tuesday Dow was down 600, yesterday up 450 today started up 250 and now down 180. Now that equities have turned red, money is starting to flow into bonds with the 10-yr  at .71 and mortgage bonds up 1/16th (nothing to be excited about). The US dollar is starting to strengthen, which will make stocks more expensive and also the almost negligible interest received on bonds (again the 10-yr is at .71 so for each $1000 invested, the annual interest received is $7.10) is worth just a bit more and may raise some interest. Data out today showed unemployment claims up and wholesale inflation muted. Markets not too interested in this. Bigger picture, and somewhat concerning, is if we are seeing a change in bias from the incredible risk-on mentality that has fueled the equity markets. I think it is too early to call, but I am aware of the movement. There may be a little hedging here with the election less than 2 months away. A Democrat victory is unlikely to keep gains in equity markets rolling. For now with bonds and rates, it is tough to see why bonds would improve much in the next few days without some outlier reason.

Interesting piece from Zillow which said that millions of renter households could likely telecommute and afford monthly payments on the typical U.S. starter home, but could not afford a starter home in their current metro. “If remote work becomes a bona fide long-term option, especially with the pandemic, that could reshape the U.S. housing market by opening up homeownership to people renting in expensive parts of the country,” interesting thought. This would reduce demand in more expensive areas and shift it to outlying suburbs. Reduced traffic, pollution, use of expensive resources, etc. Could we become more balanced in all ways?

And a precursor to what is happening in retail (and soon to be hospitality), Real-estate investor Starwood Capital Group has lost control of seven malls after a recent debt default, surrendering properties the firm acquired for $1.6 billion seven years ago. The loss of the malls is related to bonds Starwood issued in Israel and defaulted on during the spring. When a local ratings firm downgraded the debt earlier this year, it triggered an accelerated payment clause that also enabled the bondholders to seize control of the assets. A partnership between Pacific Retail Capital Partners, based in El Segundo, Calif., and New York-based real-estate investment group Golden East Investors won a bidding contest among six parties—including Starwood—to take over the malls, the new operators said

Please remain safe and healthy, make today great.