MidSouth Week in Review:
January 24, 2020

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

Jan. 27, 2020 | RedChip Companies

The S&P made a new high on Tuesday before registering a sharp decline today (-1%) after the CDC confirmed a second case of the coronavirus in the U.S.  The virus has sickened nearly 1,000 in China and killed 63.  The China Large Cap ETF (FXI) declined 6% for the week because of the virus outbreak.  Many NASDAQ stocks could be vulnerable to a China slowdown.  The yield on the 10-year Treasury note declined to 1.67%, the lowest level since early October.  The 30-year fixed-rate mortgage averaged 3.60% for the week vs. a 4.45% rate a year ago.  Wholesale gas prices hit a 5-month low of $1.51 vs. a $2.14 April high on fear of weaken demand.  Sales of existing homes rose 3.6% in December to 5.54 million.




Pop Quiz – Name the giant store whose customers scoff at whatever goes on sale, but flock to buy whatever costs the most.  It isn’t a supermarket.  It’s the stock market – especially over the past decade, when value stocks have moldered in the bargain bin.  Such companies, trading at low prices relative to their earnings, net assets or other measures, have underperformed pricier growth stocks by one of the longest and widest margins on record – Jason Zweig ….. RCA shares rose tenfold from 1925 through 1929, trading at their peak for a feverish 73 times earnings and roughly 16 times book value.  By 1932, RCA had fallen 97% from its 1929 summit – Wall Street Journal


Wealthy Politicians – “Show me a man that gets rich being a politician and I’ll show you a crook” – Harry S. Truman


The Presidential Election – In the past 19 elections, rising markets tended to signal a victory for the party controlling the White House (82% since 1944), but if the S&P declined during late late summer/early autumn period, the opposing party won 88% of the time – CFRA Research


Four-Number Passcode – on your iPhone would take on average of seven minutes to guess.  Six digits would take 11 hours.  Eight digits: 46 days.  Ten digits, 2.5 years.  A six-character alphanumeric passcode would take an average of 72 years to guess – New York Times …..Four numbers have 10,000 possible combinations vs. 456,976 for four letters vs. 1.68 million for a combination of both letters and numbers – Buzz


Warren Buffett – has underperformed the S&P by 13% over the past three years (2019: -20%, 2018: +7%, 2017: 0%), for his worst three year performance against the market since 1997-99, after which he went on to outperform by 75% the following three years – Bloomberg


Physician Burnout – Nearly half of Gen X doctors said they felt burned out vs. 39% of baby boomers.  Burnout is described as long-term, unresolved, work-related stress that often leads to cynicism, detachment, exhaustion and a feeling of a lack of personal accomplishment.  Burnout is particularly present among health-care workers – Medscape


Lives of Rich – A new study suggested that those with a net worth of $980,000+ get eight to nine more healthy years after 50 than the poorest.  The women tended to live 33 disability-free years after age 50.  Poverty has been linked to higher stress levels.  People who were more inclined to save money were more likely to engage in healthy activity – University College London study


37 Years Ago – “Home mortgage rates slip to 12.73%, lowest in 33 months” – Wall Street Journal headline, May 1983 ….. The monthly payment on a 30-year, $300,000 mortgage at 12.73% would be $3,258 vs. $1,376 for the same mortgage financed at 3.67%


162 Billionaires – have the same wealth as the poorest half of the world’s population and the 2,153 billionaires globally have more combined than 4.6 billion people, representing 61% of the world’s population - Credit Suisse Wealth Report and Forbes billionaire rankings ….. In 2006, Forbes estimated Castro’s net worth was $900 million and rising, yet all Cuban workers from doctors to teachers, baseball players, dentists, farmers, janitors subsided at a mandated living wage of $1,200 per year – THE NATION’S


Tax Loophole – The newly passed SECURE Act allows Americans to withdraw money from a pre-tax 401(k) or IRA without paying a 10% penalty for an “early withdrawal” if the funds are used to cover costs related to childbirth or adoption – By The Number$



Residential Real Estate


If you sold a home anytime within the past few decades, you probably paid somewhere in the neighborhood of 6% of the selling price to real estate agents.  This is a highly antiquated payment structure.  Before the internet, real estate agents had to do far more work to sell or search for a home on behalf of their clients than they do today.  Redfin offers to sell homes using its advanced, efficient platform for a commission of just 1.5%.  It’s not inconceivable that in a decade or so, Zillow, Opendoor, Offerpad, and Refin, plus whatever new companies join the party over the new few years, could build up a serious share of real estate market.  Not only does this concept get rid of commissions, allowing buyers and sellers to purchase or sell their home directly, but it’s’ also fast and convenient. 


Over the past century or so, there has been a clear trend toward bigger and bigger homes.  The average new home in 1920 was 1,048 square feet.  In 1975, the median home had 1,535 square feet of living space.  And in 2018, the median was 2,386 square feet, 128% larger than in 1920.  The average home price in the U.S. has risen by 44% over the past decade, and affordability is the top reason why homeownership rates are still historically low.  In order to entice new buyers to come into the market, builders may start to think smaller.  There’s a tremendous amount of disruption taking place in the real estate industry right now and consumer tastes are changing, so it’s fair to assume that the real estate world of tomorrow will look very different than it does today. – Millionacres





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