The Compound and Friends - How Amazon, Target and Walmart are Crushing It Right Now and How Millennials Are Buying Houses

Episode Date: May 1, 2020

Episode starts with Josh asing his friend Jeff Macke to pop on and tell us about what's happening with America's largest retailers, and how the coronavirus ended up being both a challenge and an opportunity for them. Jeff is an expert in all things big box retailing and ecommerce, He's also hilarious and one of the nicest guys I know. Hope you enjoy and learn some stuff from this! Later, Michael Batnick talks with Logan Mohtashami, columnist for HousingWire, about where the housing market was prior to COVID-19, how quickly the market reacted, and what it will look like when the economy reopens. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

What's up guys, it's downtown Josh Brown. Good morning. So glad to be with everyone today. My mic is on so I'm happy. All right, I'm here with Jeff Mackey. Jeff Mackey is a private investor. He's a former hedge fund manager. You might know him from Fast Money and Yahoo Finance and he is an expert on the big retail stocks, knows more about Target than most people could ever in a lifetime. Amazon, Walmart, we're going to get into everything that's happening with digital e-commerce and how these companies are transforming themselves during the crisis. I think you're going to learn a lot here. So stick around. Let's see what Jeff has to say.

So stick around. Let's see what Jeff has to say. Okay, here we go. Okay, Mackie. Yo, JB. I'm just watching Target get smoked as we talk here this morning after coming out and announcing that giving everyone in the entire store a raise is actually going to hit margins a little bit. Yeah, I guess I see that the stock has relatively done better than its sector. So maybe it's some profit taking. But what's going on with Target? People don't know what to make of the retail space in general, because right now,

if you're going to draw this up and say what you guys want to do in the next 10 years is build out e-commerce. And if you could do it in a perfect world, you would do it where earnings don't really matter that much. You would just be able to spend the way you would if it was a, you and I owned a company and it was like, here's a huge opportunity. Let's spend some cash and go after. Well, that has been done before. Right. Exactly. And that's kind of the position that Target's been put in here, where they actually have a model that they would love to roll out. All the chains, Target, Walmart, and Amazon have all been trying to jam grocery down our throats as a service for years. And no one wanted it.

It sucked. 4% penetration going into this year. People can't order it fast enough. So when I saw Target this morning, their digital growth is up 275%. Apparel sales are solid. Now, I'm willing to give them a pass on apparel sales because apparel sales at the gap are down 100%. So I'm figuring the target's doing okay down 30%. And it's actually kind of consistent with what we've seen with H&M in China, what we've seen with other chains that have actually opened in the face of this virus. People don't want to buy apparel right now.

That's not a huge spot. No one's going to see you. It doesn't matter what you're wearing. Unless you're doing YouTube videos, nobody cares. Right. And you know what? I'll be honest with you. Even on our little Zoom here, I'm wearing some old clothes, Josh. I'm sorry. I hate to offend you with my dated sweater, but no one really gives a crap. And your cute shirt from Target, people will buy those again. That's going to come back, but it's going to take a while before we're buying apparel. What you are seeing now is a shift in consumers from buying all the toilet paper and rice and everything. We've got enough starchy foods and toilet paper for a while. And so you're seeing across all the chains here in the UK, everywhere, fewer groceries, more hard lines. People are starting

to get comfortable in their house and thinking things like, geez, these bath towels are getting ratty because we have 9,000 times as many showers taking place in this house as we did a month ago. People are behaving the way you would expect human beings living different and in their house all the time to behave. That's what I want to see as a guy who invests in these things for a living is that turn in consumer behavior because the government stuff is just noise. It's, you know, as well as I do, if people want to buy something, there's no way to stop them. If they don't want to buy it, the government could not jam people into a store literally at gunpoint. You just can't make people shop. So last week on the 15th, the Mnuchin checks went out

to people that filed their taxes. $150 billion was distributed into direct deposit bank accounts. And my guess is that Target and probably more so Amazon are two of the greatest beneficiaries of that cash, literally hitting people's bank accounts. It's not a fortune, it's $1,200, but that's where it's going, right? And

maybe the dollar stores? It's going to the stores that are open. So you have a few, you've got local grocers that are open, but the people that are really capturing share are the targets on the wall. When I see 275% growth in digital month over month for April and target, which is up from a hundred percent in March, that's market share. And so I don't, whatever consumers do after the fact, some of that is going to stick. Retail is always about market share. Normally it's just an ax fight over who can charge a lease for Tide and get away with it. Now is who can get this to my house on time the way I want it. Amazon obviously is going to do well online. They don't have anything for stores.

And so we're seeing that mix, that omni-channel, buy it online, pick it up at the store. That model's working right now. And it's scalable. So it's not just a band-aid. And what the big merchants are doing, Target, Walmart, Costco in particular, and I'm long on three, they're doing the right thing by the associates first. They're taking care of them. And they're trying to take care of their customers as best they can.

Talk about that. What is Target doing for its associates right now? Target extended a $2 an hour raise, which is pretty generous. And they're handing out masks and taking care. They're doing the sanitation things that a lot of the stores are doing. And so all the employees get masks. I've got a buddy in Minnesota who's in the acrylic business. Little spit screens, like the human salad bar things.

You see a check stance. It's the best business he's ever seen in his life. He literally can't get acrylic fast enough because every retailer is installing all those guards, all those little kind of protections for the employees that they put off for years because no one really wanted them. Well, now it's really important for these stores to take care of the customers and take care of the associates. That's going to build goodwill. It's the no-brainer investment for them. And so if Target has to inflate payrolls for a quarter, that's fine.

I'm all in favor of happy associates because they're working really hard and they're doing hard work. They almost belong. If we do a parade for – de Blasio was talking about doing a parade for healthcare workers when this is all over. I don't know how you do that without a vaccine, but okay. I feel like the,

the shelf stockers and the cashiers should be part of that parade. Like these people are standing there wearing welding helmets for not a lot of money. They don't make what, what they don't make, what emergency room doctors make. And they're there on the front lines. They're literally dealing with old people and potentially sick people. It's heroic. It's completely heroic. And there's a basic conflict in all of retail.

And this is what scares me about the malls and about McDonald's and about all the rest of it. and about all the rest of it. These are businesses that really what they thrive on is driving traffic through the store and capturing a certain amount of dollars from X percent of customers. And that's why a lot of the lesser chains always talk about mall traffic. Because the idea is if 100 people go through our store,

we can close 80 of them and that's great for us. But if that number drops to 80 people going through your store, all of a sudden you're closing 65. These aren't big margin businesses. They need full traffic. And so you have to take care of the associates. You have to deal with that problem where Costco traffic is down, Target traffic is down.

That's what happens when you restrict the number of customers who can come in your store. Again, that's the whole idea. You got the velvet rope up front. You're limiting the number of people who can come in your store. Again, that's the whole idea. You got the velvet rope up front. You're limiting the number of people who can come in your store. Your traffic is going to suffer. That simply makes sense. And it hits margins in the short term. But again, you're forcing customers to get used to buying groceries online.

I think that's right. I think customers will remember who was open for them and who was equipped to get shipments to their house and who was ready to do curbside right. And Best Buy is in that category. They will put a flat screen TV right in your trunk while you was deemed to be not even worthless, almost like a negative value. And we took all these stores for granted. I think that's over. Walmart's market cap is now $362 billion. It's back to being one of the largest publicly traded companies in the country. Target is $51.5 billion. I don't think

we will ever treat these companies the way we were circa, let's say, 2012 through 2019. You got to think about that now. Oh, you know why there's respect? Because they have physical boxes within

10 miles of 90% of the country, 95% in the case of Walmart. That's how close everyone is. And so Amazon can talk about how they're going to use the mail as a supply chain. They're going to use their vans as a supply chain. You know what kicks the crap out of that? 250,000 square feet in a suburb. I can use that store box for anything I want. And that's what you're seeing at the

stores now. They're shifting allocation of their floor space to serve that online customer. Because if you think about the difference between Target and Macy's, Macy's has a lot of real estate too, but that's all mall real estate, a parking ramp that you got to go, you got a deal, and it's a hassle. What the big box stores have is the distribution chain that we need the supply chain that we need big huge parking lots right outside of town they're all right off the freeway they're designed to do nothing except except huge trucks in the back pile the merchandise through and distribute it out front never been more never been more important exactly it's never been more critical and and at 51 million dollars i I mean, I don't like Target as an acquisition.

I want Target to reap holy mighty share and just take it and go ahead and win. But that's a hell of an acquisition for that much space. And there's a huge difference right now. When you look at the debt being raised by the retailers to the lesser ones to kind of get through this time. They're collateralizing it against inventory and against the distribution centers. The stores themselves are really not worth that much. It's the big boxes out of town. So Target is enterprise value. So it's $51 billion in market cap, but then another $14 billion in debt. So $63 billion all in. Let's say you had to pay a 20% premium for it. It's a 16 PE on last 12 months, which is accretive to a lot of the types of companies that would be thinking about doing something like this. Target might be worth a lot as kind of like a physical distribution.

And I don't think Shopify is big enough to buy them, but somebody that's serious about taking on Amazon, and maybe there isn't anyone. Maybe it's Target. I don't know that they need anyone to be serious. I think Amazon is not going to get a monopoly on retail simply because for the same reason you can't make consumers do anything. You can't make everybody shop at the same store. It's too easy to take share. At best, you have an oligopoly. And really what you have is just kind of an effective one, especially now where the companies that came into

this crisis without online operations, without omnichannel, they're screwed. Their cost of capital is basically just, it's infinity. You know, it's endless. I'm on Costco, Amazon, Walmart, and Target, all of them, for the first time basically since I've been doing this, which is a long time. So this is a long shot, but like Alibaba decides they want to be serious in North America.

They could do the target deal. Congress would LOL and shred the paperwork on camera. But it's an interesting idea. I want to get into Amazon. So this is a stock that's outperformed the S&P by, I think, 40 percentage points year to date, something like that. Morgan Stanley cut them this week just because the stock has done so well. But in their note, they talk about shipping. And they talk about shipping potentially being the fourth leg of the stool, which I guess is cloud, retail, grocery, advertising.

And then they think shipping as a standalone business could be worth more than $200 billion, like Amazon's logistics as they build that out. I guess what I want to ask you is, they seem to be kicking ass. I see their vans all over my neighborhood, which is anecdotal. What's going on with Amazon right now? They're selling stuff as fast as they can. The entire online infrastructure of retail right now is literally moving product as fast as they possibly can. And in the case of, again, the gaps, the foot lockers, the chains that kind of are online. You know, we sell you basically the same Nikes, but it's from our dot com versus theirs.

Yeah. Those companies are kind of screwed. But the other guys are just taking shares. So Amazon is actually having to slow down orders. Now, as it matures in terms of if you look at kind of the physical retailers on one side and Amazon on the other, just we won't even bother the other e-commerce. They're going to become one thing. It's going to become omni-channel as Amazon learns how to do stores and simply because they need more than fans. You can't just put all the inventory in fans and have them drive around endlessly until you deliver. They closed the stores,

the Amazon Go stores. They closed them because why bother? As it turns out, and I've done some numbers on retail before, building stores for $100 million a piece just because people don't want to go to the cash register, that doesn't make a ton of economic sense. Amazon retails like a bunch of MBAs with a whiteboard. Like they're having to start it from scratch,

which is fine. I was an MBA with a whiteboard. I just, my dad was a Target guy. So I know it doesn't work that way. Amazon sucks at physical retail. They should be the ones to buy Target. They should let Target run the store. I can't, all right.

I can't, I can't get, or I shouldn't say I can't. It took three weeks to get a delivery date from Amazon Fresh. And like Whole Foods has been a problem. We've been trying to order stuff from Amazon, anything grocery related. And I don't know if that's regional because of where I am in the country and they're just not ready for that. But Amazon's the kind of company

that by the time this is over, they will have learned so much about what to do and what not to do that delivery grocery could just be a permanent part of people's lives, like double the amount of people that were using it before the crisis. Right. And Amazon kind of needs that to come together. The Whole Foods actually copped negative last year, which is insane. They got their ass kicked by Kroger. Kroger's! Kroger's beat the crap out of Amazon in physical stores. Amazon's way too

smart to be that bad at anything. And so it turns out Kroger's has those stores. The local Ralph's is a Kroger's, the local Hy-Vee, whatever you want to pick up. They have like 12 brands that are Kroger. You just don't know it. Right. And so they're huge and they've got the distribution. They're terrible online, but you would expect them to be because they've been paid to grind out 2% margins for the last 20 years. And so they don't sound slick. They don't sound that sophisticated on the phone. They're kicking the crap out of the whole food stores. And that's kind of all you can ask them. Berkshire Hathaway bought some Kroger last quarter. I don't know what they're doing this quarter. But in Q4, before any of this pandemic, Berkshire started a new position in Kroger.

But they notoriously hate anything to do with retail other than that jewelry store in Omaha. Borsheim. I brought my engagement ring. My wife's there. It's a fantastic place to buy jewelry. And the furniture mart. But outside of that, they don't typically buy retailer stocks. And when they have, they've been disastrous. Like Pier 1 Imports.

So bad. So bad. They actually found an accounting scandal in a UK retailer, which is just crazy. It's like you went abroad. You picked one out of the infinity of like four retailers and you found the one that fits their numbers but the play there what berkshire does like are are kind of regular flow businesses and until this quarter broker had you know if lock stock or bail you're going to the freaking local grocery store it's just your store and they

would have to put something so inferior to break people out of that habit of going to wherever your local grocery store is, no matter really how you feel about it. People just get into that habit. I would just say like everything that we said earlier about the grocery store clerks, I mean, it truly demands attention what these people have done. And Kroger employees, no different than Walmart employees. I mean, it's incredible to have armies of people that get up at 5 a.m., report to these stores, and literally face down the threat of getting sick every hour of the day. It's incredible. And I'm dorky. This is what I do for a living. So I hang out with these guys

in the mornings and stuff. And at the beginning of this even just the unloading of the trucks the constantly trying to have to stay in supply with with freaking hand sanitizer customers are hard under any circumstances but if you imagine as an associate each one of these people coming into your store has the modern day plague possibly attached to their shoes yeah and you're trying to be polite, but at the same time, you know, please don't get your fomites of death on me while you're coming through my stores, sir.

And I'm sorry, we're out of stock on toilet paper. We're doing the best we can. It's really remarkable time. Hey, before I let you go, how's San Diego? How's everything by you?

You guys. Okay. They opened the trails yesterday. Everyone's kind of inching outside. There's still the sense that we're way behind the East Coast and it's still coming. But, you know, the schools are closed up. The beaches are closed up. It's kind of the same as everywhere, only with a California spin.

You know, we're kind of more laid back about it. But as long as they give us the beaches back, people will be sedate here forever. Well, I miss you, bud. Look forward to hanging again when this is all over. We'll probably both be wearing masks and gloves for our mutual protection where people could follow you at Jeff Mackey on Twitter. At Jeff Mackey on Twitter. Various rants are still there. All right, dude, you're the man. You're the man. Keep up the great work. Thanks for all this information. Guys, follow Jeff on Twitter if you're not already.

Let us know what you think. What's going on with Target, Walmart, Amazon, et cetera. Leave us your feedback. We'd love your feedback. Hi, my name is Michael Badnik. I'm sitting here with Logan Modishami, senior loan officer at AMC Lending Group and writer for Housing Wire. Today, we're going to talk about all things related to the current housing environment. Stick around, we'll be right back. All right, Logan, thank you so much for joining me today.

Pleasure to be here. So what were you seeing in the housing market prior to the outbreak? You know, the BC economy, especially the BC housing market, BC means before coronavirus, was hot. For the first time in this cycle, we saw a breakaway in demand. Purchase applications were double-digit growth right at cycle highs. New home sales, two-month average was the best in the cycle. Housing starts were up 40% year over year. Mortgage rates were low, but the sales number was extremely strong. It was stronger than I thought would be the case for 2020. So purchase applications were actually positive all the way to March 18th. That's how strong the

housing market was that we saw year over year, double digit growth. And then the lockdowns came. And then once you got lockdown protocols come in, especially here in California, New York, the market just cooled off because it was actually working from the highest level in terms of demand for the spring. And now we're just seeing a kind of a comatose housing market where listings are coming off, sales are coming off. And that's pretty much what you see in the economic data as well. So how quickly did the market turn? 11 days. 11 days was basically, I mean, even in the US economy, regional manufacturing was positive. ISM non-manufacturing was positive. Retail sales were positive. Jobless claims were

positive on March 12th. So we're talking about 11 days. Once lockdown protocols are in, basically that's it. Because you can't have a listing. People just started to question their current home buying. And then there was the mortgage market meltdown, which happened on March 9th as well that week. So you've got two factors coming in at once. So what happens to the houses that are already listed? Do they have to come off the market? Are people even allowed to sell homes right now? Well, people are still buying and selling homes. It's just that the pace of where we were was too hot for it to even remotely come true. So you actually have people taking their homes

off the market. Because from what I'm seeing, people are saying, why am I going to sell in this environment? I'm not going to get the price I wanted. And then they just say, I'm going to put the house back on the market in a few months when lockdown protocols are taken off. But there are actually people buying and selling. I've had people just say to me,

hey, listen, I got no competition right now. I could put just the listing price and get the house I want and not worry about getting outbid. So there are transactions doing, but because we're talking about state by state, depending on when the lockdown protocols are, you know, Florida and Georgia were the last two states to really go into lockdowns. Each state is going to have a little bit of different data, but the next existing home

sales, which actually going to come tomorrow, is actually not going to show the full effect of the COVID recession. It's going to be the April data because it's probably going to be a little bit over 5 million. So the housing market was probably our best data going into 2020. But it's just one of these things that you really want to buy a house if you can't go into an open house. What sort of effect, if any, actually, do you think that the government intervention will have the fiscal response? Because as I'm answering that question, I'm thinking that people that are getting checks that are receiving unemployment, I'm guessing that a lot of them are renters versus buyers. You look at the upfront data and like 81 to 85% of the jobs lost were low wage jobs. Those are

future renters, people who rent homes right now. But you see the forbearance, right? So near 3 million loans are in forbearance now. So what that does is that any future foreclosures is going to be a 2021 story. Because you know, you got between 3 to 12 months. Now, how many of these people actually would be foreclosed candidates? I can't tell you yet. Because this housing cycle has had the best loan profile we've ever had in US history. A lot of people have good loans, good cashflow, nested equity. But if you're a 2018, 2019, and 2020 home buyer, and you bought the home at 3.5%

down, you might be a future 2021 foreclosed candidate if you're part of this forbearance. But we're going to have to wait till then because right now, traditionally, you would just do the countdown to when the notice of default is going to be and then the next foreclosure. But all this is going to be delayed until 2021. And at that point, lockdown protocols most likely, hopefully, are gone. So you're just going to have that big, massive demographic patch going into buying with a little bit more supply out there. Because some of these people that can't own their homes anymore have enough equity to sell their house without going into a foreclosure or a short sale. Okay. So I guess that answered the next question, which is what if this lasts longer than we currently think? And the economic malaise just drags longer and longer and the

forbearance just continues and more and more people aren't able to make payments. Obviously, banks aren't able to take all their collateral back because if this is just across the board. So what happens? Do these mortgage payments get added to the end of the mortgage? Do banks take losses? What happens to the market? Hopefully, a year from now, things are back to normal because if you don't have the capacity to own your home, you should sell your house. The forbearance program, some of these things are just three-month deferred payments lumped into that fourth month. Some of these are going to be pushed out to the back of the loan.

But if you are underwater or don't have enough equity to sell, you're a foreclosure. Everyone else, we're talking about trillions of dollars of nested equity. Nested equity is basically the equity you have above your mortgage balance. So some of these people are just going to say, you know what, my job is not returned back. I'm going to have to sell my house. That would be a more fluid functioning way without getting the banks tied into it. But there's going to be foreclosures for sure. And the problem right now is that when you do an open forbearance, the mortgage servicers basically have to make that payment to the bondholders. And now they're going, hey, listen, you told all these people they could

just miss their payments. We don't have that kind of capital. So look for the FHFA and the government to provide some kind of facility pool to help that out. Because we had literally a mortgage meltdown starting from March 9th all the way to 14th, where banks were getting margin calls, the early payoffs, all these loans were refinancing. So the business of doing home loans in America was just collapsing because too many violent things were happening in the marketplace. So the forbearance is fine. But at some point, when the economy is going again, you're going to have to let some of these people go. You can't just say- Are you worried about potential

mortgage bonds missing their payments and this setting off some sort of chain reaction? If the government doesn't facilitate some kind of service pool, then I think some services go out of business. There's just no way. Nobody has enough capital for a global pandemic virus. So your models are all broken. So right now, it's not as bad as some people think, but we'll see how long this lockdown. See, it's all about duration and scale with this virus. If it's three, four, five months that we're in lockdown, it's going to be a problem in the financial world. And you need to facilitate both ends to make it a plausible situation for both parties. But for right now, it's not as bad as some people thought.

But again, if we go another 30 or 60 days with lockdowns, more and more people are going to take that forbearance. days with lockdowns, more and more people are going to take that forbearance. And you got to provide some facilities for the bondholders, for servicers, or else the system is just going to get more into kind of a tightening of a credit out there. And that's what we're seeing right now. Okay. So that's where I was going with my next question. Are banks tightening their lending standards given what's going on in the economy? Are they still lending money? They're lending money, but you got to be pretty clean. And I think it's a very prudent move. I mean, lending credit should get tighter in a recession. It should not get easier. So what you're seeing right now is what I call the high risk late cycle lending of home buyers get

basically pulled out of the market. We're talking FHA loans, very low FICO score, very low down payments. Those are where the credit is really getting tight and it should get tight. You know, one of the mistakes I thought we made as a country after the housing bubble crashes, that we were giving too many FHA loans with down payment assistance. And that just created another wave of potential homeowners that we're going to foreclose. So credit is getting tight where it should be tight. And I have no problem with that. Once the economy starts to kick in again, you know, people, the unemployment claims start to come down, the St. Louis financial stress index comes down, then you'll start to see credit ease. But this looks perfectly normal to me,

considering how bad this virus has impacted our economy. We should have tighter credit, but banks are lending. If you've got a job, if you've got a down payment, you have 43% debt to income ratio, 660 and above FICO score, you can still get loans in this country. What is the average down payment these days? Average down payment nationally is about 10%. So it really depends. You have some home buyers that have 20, 30% down easily. And then you have traditional first-time home buyers that just don't have enough for even 3.5% down with closing costs. So it's kind of, you put those mix. Remember, sometimes as a country, we like to put renters into home buyers

categories. Financials of renters are much different. And a lot of these people are in a barbell economy. They're just never going to make enough money to own homes. So you got to remember that home buyers right now, especially in the last seven, eight years, are the people that are doing really well. So this is why the FICO scores are so high now, especially in the last eight years of home buyers. The sub 620 or even sub 640 is a very small portion of the mortgage that we're taking this cycle. So it's a very clean economic cycle in terms of homeowners. What are some of the most interesting housing topics,

specifically in terms of demographics? I saw you wrote something about how millennial housing demand is like through the roof, or at least was previously. Yeah, I mean, for all this hype about the student loan debt crisis and millennials can't buy homes, 20-year high in millennial home buying. Purchase application, double-digit growth cycle highs.

Affordability crisis is a great term for TV, but you can't have rising demand, stable inventory, and prices still going up if you have an affordability crisis. Affordability crisis is a deflationary event. So what you have right now, and this is something that I've been working on for eight years, housing was always a year's 2020 to 2024 story. I mean, we literally had the weakest housing recovery ever recorded in history. And what I mean by the weakest recovery is new home sales and housing starts have had the weakest cycle ever. But now in years 2020 to 2024, you finally have this massive demographic patch, the biggest demographic housing patch ever recorded in history, about to get to their first time homebuyer age. So we're talking ages 26 to 32,

the first time homebuyer median age is now 33. So that it gives you a great replacement demand. But on top of that, and this is what I think happened earlier earlier this year, is that when interest rates start to fall, you get a little bit more action on the first-time homeowner moving up. We've built bigger and bigger homes for many decades. Housing tenure, which is the real story in housing in this cycle, is up to 10 years. So people don't need to move as much. But when you have that kid, that second kid, or you find a better job, you start moving. You add the first-time homebuyer with the first-time homeowner moving up together. That's what you saw earlier this year.

Looking at total home sales running about over 6.4 million. And home price growth was too hot earlier this year. 8% median sales price growth was too hot. If we didn't have this virus, I'd be talking about, no, home prices are getting too hot again. This is something we don't want to root for. Home prices are getting too hot again. This is something we don't want to root for. So the idea that millennials are just bogged down with student debt, are going to rent forever and never leave the city, you're not seeing that in the game?

Student loan debt is basically the left-wing version of what the gold bugs talk about. That's how crazy it is. It's just not. I mean, if you look at student loan debt, the majority of the debt is actually under $17,000. And the majority of the loans that are actually default or delinquent actually under $17,000. And majority of the loans that are actually default or delinquent are actually $10,000 and below. So the notion that, and this is the one thing that I always try to emphasize at conferences, people that finish school,

right, they actually finish school. And then they have that debt gives them the capacity to own homes. Like my clients, a lot of these are college agent. They're making two, $300,000 a year. Okay. They've got access to stock options. They have healthcare plans. These are not the struggling Americans that people like to make it out. That's why you see the education gap between those who finished college, who make the money versus those who don't. So the notion that everyone had like 70 or 80 or 90,000 that millennials could have, these are the upper income brackets of our country. These are not the, oh, they're the struggling, what was the theme? The struggling millennials can't buy homes. No, it's 20 year high. We have the longest economic expansion in history, the longest job expansion in history. Millennials are at 20 year highs. Purchase application is growing. 20-year highs. Purchase application is growing. So the context of the discussion, because it's ideological, right? If the government could, in theory, wipe out all student loan debt, it goes to the deficit. I understand that. But when you make it into this, oh, no, millennials can't buy homes. No, it was wrong, right?

So in wrapping up, I mean, I obviously don't have a crystal ball, but what's your take on where housing looks in the next six to 12 months? As long as lockdown protocols are in, the housing market is in a coma. You just can't get enough transaction. What's different now compared to what the housing bubble crash was, is that inventory is falling because people are taking their listings off. Okay. So that's the difference. It's not like people are forcing themselves to sell or anything like that. People are just waiting back.. Okay, so that's the difference. It's not like people are forcing themselves to sell or anything like that. People are just waiting back.

You get people back out of lockdown protocols, housing will slowly get itself back up to where we were. Total home sales, about 6 million. That's the things we should be going for. New home sales and existing homes back to 6 million. That's been the trend for the last few years. In time, it gets there. However, every month that goes by with lockdown protocols, you get more and more long-term damage

in. So that's, I think, that's the equilibrium we're trying to find with the housing market is how much damage is this virus going to do and what's it going to look like when the lockdown protocols are up? Because the bonus is mortgage rates are low. Housing gets weak when the 10-year yield gets above 2.62%. Oddly enough, when you say this, four and a half to 5% mortgage rates actually is problematic for the housing market. It isn't a crash theory, but that's where we see supply increase, demand fall down a little bit, especially in the new home sales sector. So as long as you can get people out there walking the earth again, and then being able to do open houses and mortgage rates are low, housing will slowly get itself back after lockdown protocols. So I tell everybody, give it about 30 days after lockdown protocols are off, and then take a look at the housing market.

Because this data, it doesn't provide any value out here while we're still in lockdowns. We're going from the strongest point of the housing cycle to this comatose. We should be able to work ourselves back in because the virus cannot kill the biggest demographic patch ever recorded in U.S. history for housing, and that's ages 26 and 32. That's still going to be here. Most of them are still going to be employed after we get off this. That's beneficial for housing. I think the damage we're going to see severely is in the rental market. That's where you should see the upfront damage and maybe the long-term damage going out for a year or two is in the rental market. All right. We're going to leave it there. Logan, thank you so much. Pleasure to be here. Thanks for listening. Check us out at thecompoundnews.com for daily investing and

market insights. You can watch all of our videos at youtube.com slash the compound RWM. Talk to you next week.