저자: Kevin · 외국인
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7월 19일 이후 주식 급락의 원인으로 머니마켓펀드(MMF)로의 자금 대이동을 지목. 주식펀드 유출 116억달러 vs MMF 유입 911억달러, 역레포 잔고 반등을 근거로 제시. MMF가 국채보다 높은 수익률을 주며 시장위험이 없어 국채 금리 상승·주가 하락 압력으로 작용한다고 주장. 연준 금리 인하는 2024년 말까지 1~1.5%p 예상되나 시점 불확실, 모기지 금리는 약 1년간 높게 유지되어 부동산은 현금 매수자 중심으로 보수적 접근 권고. 주식은 금리 인하 전 선반영 가능성, 인하 본격화 시 국채(TMF) 및 주식 급등 가능성 언급.
다듬은 글
The stock market has felt like it's been in utter free fall since July 19th. And the question now is, why is this happening? When will it end? And what does it mean not just for the stock market, but also the real estate market? Well, in this video, I have found one potential reason that is causing the movements we're seeing in markets that's going to contribute to what to expect going forward for stocks and real estate.
Quick note, we're thinking about bringing back the seminars we did back in 2019 where we teach you how to invest in real estate in person, how to get started from zero, and , let me know which city you'd be interested in. It would help us out a lot. All right, with that said, take a look at this. Wall Street Journal front page today, where are investors finding returns in a world of yield?
What's most important out of this article is the flow of money. And this is going to help us understand what's going on in Treasuries, stocks, and real estate. When we look at the exact flows, we can see that 11.6 billion dollars have been pulled out of stock funds like ETFs and mutual funds over the past 5 weeks, basically since July 19th and a little bit before that.
While at the same time putting nearly nine times as much money into money market funds. That's 91.1 billion dollars. You could see that exemplified here via the chart. Basically starting July 19th, you see this explosion of 30 billion dollars going into money markets. Stable-ish the next week, 7 to 8 bill, followed by almost 20, followed by almost 40 billion dollars flying into money market funds.
That's where the money is going right now. Now, why is this interesting? Well, it's interesting because money market funds today are offering in some cases more yield than Treasury bonds. I just got a phone call from JP Morgan that they're offering me a money market fund for House Hack at 4.5% or they have a 6-month CD at 5 and I think it was 5.15%, whatever.
Point is, what's the point of playing the Treasury market if you could have 100% liquidity with zero market risk in a money market fund. Consider this a for a moment because it's important to know the difference here because once we clarify the difference, then we're really going to understand what is this going to mean for stocks and real estate going forward.
It's actually pretty remarkable. So, consider this. We'll jump over here and we want to evaluate if you have the choice, let's say you have cash and you decide, you know what? Stocks are going up, what are you going to do with your cash? You buy stocks. Great. But you tell yourself, which I suspect a lot of people are doing exactly this and based on flows, this is what we're seeing.
You say, "As soon as stocks start falling, I'll dump those and go back into a money market fund." Stocks are going down, buy yield basically. Okay, fine. That sounds absolutely reasonable. This sounds like something a normal person should be considering. So, what choices do I have for yield? Well, I have a money market and then I have a second choice of yield and the second choice of yield would be Treasuries.
Obviously, you could do corporate bonds and some other things as well, but we're just going to ignore that for a moment. So, what are the pros and cons of these? Well, the pro on a money market, no market risk. In addition, liquidity. It is 100% liquid. You could go in there, trade it out in a day. Stocks start going up, you can move it.
Bonds fall, you don't have a market risk because it doesn't matter. You're in a money market. What do you have with Treasuries? Market risk. This is where basically stocks could fall and Treasury bonds could fall, ruining your portfolio, right? So, let me think about it. If if you're like, "Oh, I have a diversified portfolio and I'm in Treasuries and I'm in stocks, but then all of a sudden Treasury yields are going up, bonds are falling, and stocks are falling, all of your portfolio is just falling.
Whereas with the money market, you have no market risk. In addition to that, you have limit or I should and I shouldn't call it limited, I should call it less liquidity because obviously if you're in a 6-month or a 1-year or 2-year, you have less liquidity because of the market risk. Now, that might be double counting here, but most people feel like they're less liquid because they're like, "Oh, I'll just wait for it to mature so I get rid of the market risk, right?" So, in order in order to have no market risk, you must hold to term maturity.
That creates time risk, right? If stocks are starting to go up and you want to jump into the stocks, but you can't because you want to hold to maturity because you don't want to take losses on the Treasuries, you're kind of like, "All right, well, crap. I don't want Treasuries." Now, this made a lot of sense last year.
Last year, this was great. Why? Because money markets were low. They were offering, you know, 2% or something like that and you could get double that in the Treasuries. Today, guess what you're getting on money markets? Well, I already mentioned it to you. 4.5 to 5.15%. Well, why would you bother going into, you know, this is versus a Treasury right here.
Why would you bother going into a 2-year at say 5% or a 10-year at 4.3% or heck, even a 6-month. We'll pull up what a 6-month is doing right now. but why why bother if you could just be in a money market and basically get the same thing. 6-month right now, uh a little bit higher. Okay. To be fair, 5.49.
A little bit of a premium, but if you could get a 5.15 on a money market, why bother? Now, this has important implications for the market. Very important implications. Uh first though, it's worth noting like where can you get some of these money markets? Quite frankly, a lot of banks are offering them and I'm not affiliated with any of these right here.
SoFi is offering 4 and 1/2% 4.7, CIT Bank 4.05, uh you've got Bask Bank sitting at 5%. Uh Laurel Road 5%. You're probably going to start seeing some of these smaller credit unions start offering more of these uh uh these yields. Now, usually to get a higher yield on a money market, you do have to end up putting in a certain amount of money.
So, it makes sense, but still, why? Why is this happening? Well, again, market risk, timing risk. You can instantly hop back on over to your stocks if you wanted to. How do we know that this is potentially happening? And where are the money markets getting yield from? Because if there's no market risk, then they're not getting them from treasuries, right?
Correct. They're not getting money uh the these yields from treasuries. They're actually getting them directly from the Federal Reserve. You see, as the FOMC target rate, this is the lower bound by the way. Don't worry if you don't know what that means. Uh basically, the FOMC rate, the Fed's rate is like 5 and 1/4% right now.
Well, that's basically in the middle of a 2-year bond yield and a 6-month bond yield. So, you could you have a choice. Can you get the Fed funds rate or the Treasury? Well, why why would you want the Fed funds rate? Well, because it has instant liquidity. It's an overnight lending tool for banks. So, you have liquidity.
And guess what money market funds use. The Fed reverse repo facility, which pays out roughly the same as the Fed funds rate currently. That can change. The Fed can manipulate that. But, you don't have to worry about that right now. They're the same. Point is, if you could get And this is what I want you to think of.
If you can get 5.25% or even 5% on a money market, and that money is being deposited into the Fed's repo facility. Again, you don't have to know about how the repurchase facility works. You're getting liquidity without market risk. Why would you bother with Treasuries? Now, how do we know that's happening?
Well, there are three ways we know this is potentially happening, or should I say likely happening. Number one is the Wall Street Journal article I talked about. But, that's a duh, okay? That's not so useful. Another way that we know this is happening is by actually looking at what yields are doing.
30-year mortgage yields are going up. What are 10- and 2-year Treasury bonds doing as well? They're also rising. The 10-year Treasury yield is at the highest level that it has been this entire tightening cycle. And people are like, "How does this make sense? Why is the 10-year Treasury yield so high?" The reason it's so high, here's the last 5 years by the way.
The reason it's so high, creating its double peak, is because why would you buy the 10-year Treasury if you have market risk associated with it? You're better off sitting in a money market. So, when stocks rally again, you can move over if you want. You get a deal in real estate, you can move over if you want.
So, why take the risk? It doesn't really make sense. Unless you're speculating that, well, you know, yields are going to fall and then bonds are going to go up. But, then you're making a bet, right? Making a bet is different from max liquidity and no risk, like you get in the money market. Okay, so reason one, Wall Street Journal piece on flows.
Reason number two we know this is happening, treasury yields, okay? There's actually a third reason. Remember how I said money markets put their money into the reverse repo facility? The reverse repo facility has been getting drawn down because of quantitative tightening. Now, if money is starting to flow back into the repo facility, we would expect to see some kind of slow down in how quickly it's being drawn down.
So, if the reverse repo facility is falling and then all of a sudden people are using money markets again, you would either expect it to flatten or maybe start going up. But, there's a lot of quantitative tightening going on, so probably some kind of flattening. Maybe just even a slower fall, right?
Well, let's see what's actually happening. Holy crap. It's not only flattened, it's slightly started trending up again. This is exactly what's going on. But, wait a minute. Let's corroborate it one more way. The stock market started falling July 19th, right? Where's the inflection point right here? Well, let's see.
Boom. What's right there? July 19th. July 19th is when the fall of repos, the repo balances paused, and all of a sudden repo balances actually slowly started going up despite the fact that the Federal Reserve is conducting 80 billion dollars a month of as we just saw, what were the flows into money markets?
91 billion dollars. More money went into the money market repo facility I'm blurring those together, I realize that. But, the point is more money went in than the Fed tightened. This is insane. Where did some of that money come from? Well, some of it came straight up from stocks. People just selling stocks.
But, it is also coming from people selling treasury bonds and moving them to money markets. Well, if you dump treasury bonds, that means you're selling them, which means the price goes down. As price goes down, yield goes up. So, it totally makes sense. Stocks down, Treasury yields up, because people are ripping that money out, throwing it into money markets.
Instant liquidity, risk-free. It's actually exactly what House Hack is now doing. We're moving our money to money market funds. And I'm like, of course. That's what the broader market is doing as well. So, what does this mean? Like as an investor, what does this mean to us for stocks and real estate going forward?
That's the big question, okay? But we can analyze this. First, we have to think about the fact that by the end of 2024, we expect the Federal Reserve to cut rates by 1 to 1 and 1/2%. When that will happen, nobody freaking knows. And quite frankly, we don't even know that it will. It could happen in March, it could happen in May, it could happen in November, it could happen over that whole time.
Probably start before the election, right? It's all going to depend on unemployment. But, let's say rates go down 1 and 1/2%. So, bringing us closer to about 4%. Well, what's real estate going to look like? Well, what we could honestly do is just go back when the lower bound was about 3.75% over here.
And what were mortgage rates then? Oh, wow. They were just as high as they are now. This is not great if you're thinking about getting a lower rate on a mortgage anytime soon. It's honestly also probably not great if you're expecting stocks like Enphase or Tesla to do fantastic in the near term, because really, it might be a while before those rates come down.
That is a problem. Now, it is a big opportunity if you can get to the other side, but you have to make it to that other side, right? And the market will start pricing in those rate cuts in the future, but we don't know how close that future is yet. So, consider this. From a real estate point of view, we're probably going to deal with mortgage rates that are similar to levels where they are now for another year.
And mortgage rates are 7 and 1/2 to 8% right now. So, sitting here for another year is really going to start putting pressure on the amount of buyers that we have. The people who will buy are going to be cash buyers, and that's virtually it. But, even cash buyers aren't as interested right now in doing renovations.
I'm finding less competition, and I'm getting better deals as a cash buyer in real estate right now because there's less competition. But, you have to be patient because you could also start seeing prices slowly start trending down. I don't expect a 2008 here, but you get more and more aggressive as the market gets more aggressive, and you actually hedge by just getting better and better deals.
Instead of an $80,000 wedge, you're at a $100,000 wedge. Instead of a 100k wedge, you're at a 120k wedge or 140k wedge. That way, no matter what the market does, you're insulated. By the way, how to do that is exactly what I was thinking about teaching in in-person seminars. If you want, just click that link down below and let me know where you would like to see those.
So, that's real estate. Well, we can obviously speculate on what'll happen to real estate prices. Uh we know they came down uh 10 to 20%. We know that they since recovered about half of that. We know that rents came down after that. We know that they've stopped going down. So, we've seen some stability.
But, is it possible that that stability was supported by people who were willing to pay higher rates over the last year? And now those people are gone. Your new entrant of buyers are like, "Yeah, no thanks." Absolutely possible. So, you have to be careful for both directions. You have to be prepared for, "Hey, we don't want to mess up a good deal, but we have to make sure we protect ourselves with a solid wedge going into it." And the more the market moves, the bigger the wedge goes.
In case you don't know what the wedge is, the wedge is basically buying a $500,000 property in a $700,000 neighborhood that needs say $50,000 worth of work. That's basically exactly the first deal that House Hack bought in a fantastic neighborhood. I mean, primo neighborhood. I would live there in a heartbeat.
Super close to skiing, too, by the way. Uh anyway, it'll be a long-term rental, but I mean, it's only going to take about 50K to fix it up. So, we have about 150K wedge on the first deal that House Hack is doing. House Hack is getting ready to raise money, by the way. We'll probably start raising money.
Uh we're aiming for September 1st, but you know, between you and me, it's probably going to be like more like mid-Sept. We'll see. TBD. Uh it may be for course members only, though. So, stay tuned. We haven't quite figured out that yet. Uh anyway. All right. So, uh that's House Hack. Uh you which of course you can join the courses relatively inexpensively.
Link down below. Uh okay. So, now, what about stocks? Okay. Stocks, they will probably price in rates coming down sooner than real estate will. That actually means you probably have longer a longer period of buy time for real estate. Like, you don't have to rush. And that's fantastic. Okay. But with stocks, at some point, as rates start trending down again, we end up seeing movement back into stocks.
One reason you could see a movement into stocks is because as the trend of rates going down starts, people get euphoric again. They go back into stocks, and then the rate of return looks higher on stocks than money markets. You don't want to miss out on a 30% stock market gain because you're farming 5% in money markets.
That's the point of a money market, though, is you could violently shift over to stocks. You could very quickly shift over. Now, the other thing to keep in mind is when and if the event occurs that markets start pricing in we've reached peak rates and prices or should I say yield start coming down like the Fed yield starts coming down on repos, people are going to be tempted to start buying treasuries again.
Because think about it, if your money market yield is falling and every 6 weeks it's going down half a percent because the Fed is cutting by half a percent at a time because unemployment is rising, well, your money market yield of 4 and 1/2% is going to turn into 2% really, really quickly. What's that going to motivate you to do?
Well, you either buy stocks or if you want the yield with no risk and you're willing to wait to maturity, you buy treasuries. So, treasuries get bought a lot because then you could lock in your 10-year, your 2-year, your 5-year, whatever 20-year yield as soon as the Fed starts really committing to the idea of cutting.
So, putting all of that information together, let's write down a bottom line to all of this, okay? You ready for this? All right. So, first, the longer it takes the Fed to cut, the more you should hedge with a wedge your real estate, all right? That's lesson number one. The longer it takes, the more you wedge, okay?
So, I'm going to explain the wedge. In addition, be prepared for a violent movement in treasury uh bonds up and stocks up as money markets uh hit FOMO uh and uh and see their death written on the wall, okay? Their death is falling. This This starts This starts in earnest when the Fed starts cutting, not when they pause.
And that's actually something interesting, not pause. Pause doesn't matter because you could still get your money market at such a high yield, right? Like who cares? If the Fed pauses, I'm still getting my 5.25 or whatever on my money markets. So who cares if they pause? So that doesn't matter. So pause doesn't matter.
What you need is cut. Once the Fed starts cutting, which is probably when when unemployment rises, so maybe mid-24 or by election, that's when you flip. Now, usually the stock market tries to price this in 6 to 9-ish months early. So say uh September 24 Fed uh aggressively cuts, you probably have to buckle up between now and January uh for for that that real euphoria, right?
For real euphoria to come back. Now, that doesn't mean uh stocks are going to keep falling, but it is a risk. Uh so like you should know though the reason stocks are compressing like this is because of people's ability to just sit in money markets. And I think this is a really big deal. So I think now we've addressed real estate.
You have to hedge more the longer this takes. Uh that's very important. And even when even in September 2024, uh mortgage rates will likely still be high. So you have to be really patient here. I think patience is key. That's very very critical, and that's what we're going to do with House Hack, very very patient.
Very important, okay? Uh but we'll buy good deals obviously as they come up. Be prepared for violent market movement in Treasury bonds. Uh that's that's potentially this is when you go TMF. This is when you buy TMF when this violence occurs. Uh that's you know, your your long Treasuries and this is expecting yields to fall, prices of bonds to go up.
In the stock market, you probably have to be patient uh for for expecting real euphoria yet. I actually don't think uh I don't believe what we had over the last, say, 6 weeks uh or before the last 6 weeks. So, had before the last 6 weeks was true euphoria. I think it was sheepism. Sheepism. Basically, sheepism is where you're you see stocks going up, you're like, "Uh you know, they're making more yields than I am.
Let me go flip and buy stocks." And then people flip out and go back to their money markets. Uh that's really just following the trend, which is fine. Like, there's nothing wrong with that. You avoid pain by doing that to some extent. You do potentially miss out on lower entry prices, but you know, six of one, half dozen of the other.
It doesn't matter. Anyhoo, these are some of my latest reads on what's going on in the market. I think this is very useful. If you found this helpful, share the video, help the channel out, subscribe. Let me know which city you'd consider going to a seminar in. I'll link it down below. Thank you so much and we'll see you soon. Goodbye.
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