Ed Dowd and Melody Wright #1328

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On this episode of Coffee to Mike,

Ed Dowd is the founder of Finance Technologies

and author of the book, Cause Unknown,

the epidemic of sudden death in 2021 and 2022.

He joins strategist writer, technologist Melody Wright

to discuss private credit, BlackRock Blackstone,

commercial residential real estate, and much more.

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Ladies and gentlemen, the Mike is on.

I welcome Ed Dowd and Melody Wright.

Thank you so much for doing this conversation.

I've been looking forward to and there's so much to talk about.

So thank you to both, thank you to both of you.

Thank you for having me.

And it's awesome to meet Ed finally.

Same here, great to meet Melody and thank you for having us on.

Let's kick things right off.

Let's go into private equity.

There's so much, you know, everyone's,

a lot of people are focusing on the Middle East.

And I feel like private equity is not getting enough attention

right now.

Melody, you want to kick things off with,

where we're at with BlackRock Blackstone.

And yeah, where are our things?

So, you know, the focus on private credit

that I've been doing is because there's

just so much that feels very similar about it

with respect to kind of what happened with subprime mortgage

and sort of, you know, just over leverage.

But now it's in this sector.

And so what you're seeing at least, what it seems to me

is that there is contagion.

And pretty much there's a collateral shortage.

There's a squeeze, people can't, you know,

they can't keep papering over these really toxic assets.

They've done a lot of playing around, you know,

good assets, bad assets, tried to build new funds.

All sorts of things that I feel like they're running out

of time.

And so we're seeing this stuff accelerate.

And I really think that, you know,

when we get on the other side of this,

that Blue Al was going to be in the center of this stuff.

I mean, just looking at their list of investments,

it's kind of, it was just fun.

Because I mean, they are all over the place.

So anyway, that's, that's my high level take.

Ed.

Yeah, I mean, private credit is an opaque asset class

that is, you know, loans are done by appointment only.

And, you know, the beginning of the credit cycle,

the deals were probably made sense.

And it was a new asset class.

And then it attracts a lot of capital.

And Wall Street loves it because it's, because it's opaque.

And the bid aspect is so wide.

They make a tremendous amount of fees.

And so as we roll through the credit cycle,

the last, you know, a couple of years of any new asset class

is underwriting standards go out the window.

And so we have a lot of like really chunky deals

that have been done, you know, billions, perhaps a trillion

of just really questionable assets being financed.

And now, what you're seeing now with these announcements,

it's a blue all blackstone and now black rock

is it's now manifesting into the public.

It's been behind the scenes for a while.

And what really started this was try Colorado,

blew up first brands, Prima Land, and now this MFS over.

So they can't hide it anymore.

And that's what's going on.

And they're marking down.

And what's alarming to a lot of people is how does a bond

go from par in one quarter to zero?

Zero, one quarter.

Yeah, zero.

In one quarter, one quarter.

And, you know, look, junk bonds are publicly traded, you know,

speculative bonds with the QCIP.

And there's usually warning signs, the spreads widen.

And you can see, you know, investors can see it coming

if they're smart.

But there's no warning, there's no, there's no,

it just goes to zero overnight.

So this is alarming so that so that not that they're gating,

there's liquidity, squeeze, these assets aren't liquid.

There's no really secondary market for Anita stuff.

Right.

As opposed to the, you know, at least in the subprime days,

you could set, you could sell it.

You may not like the price, but you could sell it

because it underlined everything was a house,

some collateral at some point.

What is the collateral?

The collateral here, we don't know what it is

because every deal's unique.

So this is, this is a disaster.

And, you know, the banks, the commercial banks are exposed

because, you know, we just put out our US economic report.

And we, we were alarmed when we found out in 24 and 25,

all the, the, the loan growth from commercial banks

was to non depository financial institutions,

but here's private credit and private equity.

So the banks are on the hook too.

So this is, this is, this is, this is going to start

the credit crunch.

It's already, you can already see it in the AI

financing.

It started to manifest in the fall when Sam Altman

started this on the alarm bells and pulled the idea

of the governing funding and financing AI

because they were seeing it already.

And I think the AI bubble is already blown up

in just a matter of time until, you know,

the stock price is really, the public facing companies

get slaughtered and they're in the process

of starting the role over.

Yeah, and, and I totally agree with that.

And I also agree with you about saying it's worse

than subprime because we don't know.

And just looking at the list of investments

that blew out, I mean, you start laughing

because they're, I mean, it's just all over the place.

Like it's just like, and then you say,

oh my gosh, they're invested in them.

They're invested in them.

I mean, it's just like, whoa, there's just a lot

of opportunity for bad stuff to happen.

And, and you know, I kind of feel like this is,

this is on steroids from what we went through

in the last credit crisis because, you know,

we started doing our write downs

probably early 2007 because Cerberus had made

the asset purchase.

They wanted a purchase price adjustment

because everybody could see that housing

was starting to come under stress.

And, you know, so we wrote down our first,

we had our first write downs in our second,

then our third and, you know, and it just went on and on,

but it wasn't like overnight.

I mean, that, that happened over several,

like probably two years, you know,

and so this is kind of crazy to see this happen

and I hope that it's, it's waking people up

to what this asset class really is.

But, you know, that's probably some opium on my part.

But like you say, I just think they can't hide it anymore.

There's no way to hide it.

And so, you know, we're just starting

to see the dominoes fall.

Yeah, the other thing that's interesting is,

there seems to be some very simple old-style fraud going on

called double pledging.

This is not very,

yeah, it's not sophisticated.

But, you know, first brands did it.

I think I'm not sure.

Maybe tricholor did it, amethystics.

So this is a lot of, if everybody's doing this,

this is a disaster.

Yes.

What is it, Ed?

Could you, could you explain what that is, Ed?

Well, basically, you like, you, you,

you've already pledged some assets to get along

against those assets and then you get another lender

and you use those same assets to get another loan.

But the, the, the, the second institution doesn't know

that that pledge is already pledged to someone else.

Right.

Those assets already pledged.

So, so that's how, when first brands,

the money just disappeared over the first time.

Yeah.

It's just gone.

Yeah.

Yeah.

No, and I think that's wild.

And what I was actually going to ask you before we started

is that, you know, I remember very clearly my first

introduction to BlackRock yelling at some junior analyst

about the value of a trading security, which was zero.

And they thought it was $27 million.

I'm like, you know, anyway, you know, but it's, it's funny

because I don't know exactly your history.

But were you, I mean, did you work any on the mortgage side

during that whole disaster?

So I was, I was a large cap growth manager.

And BlackRock was, uh, interesting.

We had a daily, daily morning meeting and, uh, you know,

we'd have all asset classes, you know, for 20 minutes,

just kind of go around the horn.

And the bond guys were freaking out in 07.

And the equity people, I started my career and fixed income.

Then I went back to business school, then went to equities.

And I've always known bond people are smarter than equity

people because they have to be because you can't, you know,

it's like you don't losing money in credit is like a career

vendor.

Uh, in, in, in, in, in, in stock land, you can get a lot of stock

wrong.

If you get a couple right and ride them, you can make your career.

So equity people learn stories.

And if the equity people were like, everything's fine.

Look, the stock market is still going up.

They like, you know, seven, it was going up with all these

institutions were like blowing up.

Right.

And I, because of my bond background and I, I used to actually

like sell repo agreements.

I did repo overnight repos.

Yeah.

So I knew what was coming and it was just, it was hysterical

to watch all the equity people be shocked as to what happened.

But I do remember down the hall was, uh, this, uh, a couple

of people in Boston, I was in Boston working for Ron DiBari, who

was the, the head of the sub, the sub prime CDO business.

Oh, yeah.

And, and, and Ron, Ron was, and most of the bond people hated

Ron because he was, you know, his bonuses were fat.

You know, they were, and he said, I can turn shit into goal.

Yeah.

So that was that.

So his arrogance was done's doing and, you know, and then

when it blew up, you know, half a Ron's team was fired along

with Ron, but the other half were kept on to do the workouts.

Right.

Right.

You know, right.

Yeah.

I made jokes that I used to sleep with my asset disposition

schedule.

I mean, you know, like all of our distressed asset sales,

because I would get a call from the CFO, like every five minutes.

Okay, where are we now?

Where were we now?

You know, because we were about to blow covenants.

It was a daily looking at tangible net worth.

I mean, and all we could do was sell, sell, sell, sell, you know, and

try to get these assets of our, it was a really crazy time.

But something you said at the very beginning and I totally agree

with, they've known this for some time.

Like this is, they've known it probably since Blackstone

Gated Breet in what, 22?

I mean, you know, so this is just, I can guarantee, in my opinion,

anyway, that, you know, people, this has been a pseudo emergency for some

time.

And it's just now kind of getting out into, you know, into the market.

But what is your view on that?

Yeah, I know.

So I think, I think it's been a hidden problem.

But then they added that because of the fee structure and the amount of

bonuses they were getting, they kept adding to it.

And so, you know, in 20, in 24, when I started to see loans being

given to, uh, AI, uh, companies with, uh, Nvidia chips is collateral.

I knew it would end poorly.

Uh, you know, see, here's, here's several billion dollars.

I'm giving you and the collateral is, is, is depreciating chips that

will be worthless in three years.

How does that make any sense?

It doesn't.

It just doesn't.

But the deal got done.

They made their fees because, you know, the AI complex was going out

valuations were rising and it was all great until it wasn't.

And one thing I'd like to point out to everybody, if, uh, last year, if you

were, um, Google or meta or Amazon or any, but, uh, you know, and you

were raising your AI catbacks, your stock up rewarded.

This last quarter, they raised their catbacks expectations and their

stocks all got torched because the credit markets are now saying, hey,

whoa, what's the, what's the ROI on this?

And that's it.

What, once, once the credit market started questioning, it's over that the

catbacks is going to pause.

All these fabulously high catbacks expectations are all going to be, uh, you

know, marched down and video is going to miss a quarter.

It's all going to happen.

Just a question of when?

Yeah, I totally agree.

And I mean, and that's, that's what's, that's what's kind of wild about

right now because it really could happen at any point.

I mean, so what, what do you think?

You know, um, I remember 2023 is so clearly, um, you know, uh, in

terms of where we were headed, where we were headed and housing.

I mean, home prices were definitely headed down.

And then, you know, we get sort of the bank failures.

We get the BTFP and we get, um, you know, sort of all this back, backdoor

intervention in the market, um, and things just kind of got started all over again.

What do you think's going to happen this time when one of these, and, and do

you have, is there somebody that you think is going to be the first to go?

Well, you know, who's holding the old maid?

I don't know, but that it's, you know, you know, you know, you know,

somebody's going to blow up, right?

It's a question of who, uh, but what happened?

We, we got 20, we, we were calling for a session at the end of 2324.

All our traditional economic indicators, which had worked,

been backtested for 30 years, it always worked.

And what we didn't count on was the US government importing, uh, 20 million

illegals and giving them that, that really kept the party going, uh, and,

and put a, put a floor underneath housing for a little bit because,

yeah, they've not been buying houses.

They were renting.

They were, yeah.

And so as soon as Trump got in there, uh,

new tenant rent started plummeting because the people started self-deporting

and now the borders close.

Now that the, the, the mass deportations haven't happened,

but you don't need that because it's a second derivative of effects.

So the fact is no new airlines coming in.

And as far as you know, this, we, uh, this housing cycle is slightly different from the last one.

It wasn't single-family homes.

It was multi-family structures.

And that also, because of the construction time,

as opposed to single-family homes,

it got me going a little longer because once it started,

you know, a single-family home is like from permitting to completions a year,

multi-family structures along.

So the construction activity percolated a little,

but it's all rolling to disaster.

Right.

Right.

Right. So, so I agree with you.

And I think that this is something that when we go back and study this time,

and I think that at least I haven't seen enough of us able to kind of really,

sort of get our arms around exactly how immigration played.

I mean, we know it played a huge part,

but we, there's still data we're missing, right?

Like, when I saw people ask me throughout 24, you know,

can immigrants get mortgages?

I'm like, well, they can, you know, they can, if they have an I-10,

but I can't imagine that it's, that's a lot of people, right?

It's what I said.

And then we saw looking at the lock data.

And now this isn't the, you can't look at that really,

but somebody did, it shows it 6% of FHA borrowers were,

you know, foreign-born non-citizens.

And so, and we know, we know actually one of the things that's holding up the Chicago market

was the 15,000 that gave for rental assistance to immigrants,

but also there was a big Ukrainian immigration population there that all bought houses.

And so I just think that like, this is going to be something that we,

we have some idea of how it impacted things.

But I think it was a, you know, at least for myself and housing,

I still don't have the data.

We still don't have the data of how many people

are sort of participating in the housing market.

But we can see what's happening now.

And we can see like you say, Rick, yeah.

Yeah, so I, I took a stab at, you know, how much fraud,

so that the, the, the deficit spending was 8% during 23, 24 to GDP,

which is quite a subtle deficit spending.

I kind of did a back of the envelope estimate and I,

and said anywhere from 500 billion to 1.5 trillion,

went into this whole system of bringing leagals in,

giving them money, giving them subsidies,

and also the NGOs that facilitated this made money.

So it was like this ecosystem.

My partner, Carlos, did an interesting analysis a couple of weeks ago.

He said, you know what, you know, what does it cost to fund a prisoner in the prison system?

And he's an average of 60,000, you know, you get food, you get shelter.

And he said, if we take that math and give it to like, you know,

that's what it costs to like keep someone alive.

Let's impute that to the illegal aliens.

And he came up with like 1.3 trillion.

And I'm like, yeah, we came out of different ways.

But so I think 1.3 trillion was fraudulently injected into the economy,

given to these illegals and some of that manifested in home purchases,

others run subsidies.

And that really distorted everything and kept this, kept the game going.

Because you know, when we said bank failures,

and you know, I thought it was 23.

I was like, this is coming.

I did.

And then we did, and what we missed was the elephant in the room.

Plot of 40 million people in and given them 1.5 trillion dollars.

That's all I understood.

Now that's all unwinding.

And the credit cycle's finally biting.

And now it's, I think it's unstoppable.

And it's going to be worse if they let it go in 23, 24.

We'd be coming out of it by now.

But it's going to be a disaster now.

Right.

Right.

Yeah.

No, I totally agree.

And it's funny, you know, when I went out to California last year,

you know, Ote Mesa, which is I think by numbers, the third or fifth largest immigration

and detention center, we went there.

Core Civic owns that.

They also own a prison here to the sea.

And then they're under a DOJ investigation.

And so to your point, I think that was probably a smart analysis.

Because you really do have the same set of people managing both sets of populations.

So that's, which is crazy.

So we're never going to figure out the full extent of the problem.

But we're going to experience it in the unwind coming in because the borders have been shut down.

And there is, there is some attempt at mitigating the fraud.

Obviously, they're slow walking, shutting off the fraud.

Because I know if they shut it off too fast, the economy implodes.

Because so much of the incremental growth the last couple of years came from fraud.

Right.

So this is going to be very interesting to watch.

And, you know, I don't know how Trump,

you know, they'll try to save it.

But I think it's already baked into the cake and it's going to happen.

And private credit and unwinding is going to then have,

when they start dating that asset class,

people are going to need liquidity.

They're going to sell all the things.

So it depends the snaka.

You remember during the very financial crisis, what?

People are like, oh, sometimes so small.

It's not a big deal.

It's the daisy chain effects.

Yes.

And yeah, and you watch, and I remember, and this is something I tried to talk to people about

before, you know, like late 22 or late 23,

is I remember very much in 2006 looking at our book and saying,

here's our 12% subprime.

That's kind of what it was then.

And then here's our pristine prime book.

You know, credit scores are great.

LTVs are great.

And then it was just like the slow,

like subprime we really got control of by 2008.

But it was the contagion into the prime books that were,

that really, that's where the foreclosure crisis came from for my company.

And so, you know, it's, it's, you're starting to see it.

Vanished score just came out.

You're starting to see credit scores take down like in aggregate.

And we know that they're, I mean, we know that kind of our millennials and our Gen Z,

who had student loans got completely pummeled when those things started reporting again.

And then you're, I mean, suddenly overnight,

you had a lot of people who went from a 750 to a 600, 600, six food.

And that, you know, one of the most shocking things I've seen is the fed,

you know, their, their summer year of consumer expectations report where

we're waiting for the new one.

But the last one, the mortgage refinance rejection rate was over 43%.

You know, the highest in their tracking ever.

And the rejection rate for purchases was over 20%.

And so, you know, the people need to access credit,

but they're not going to be able to because of those credit scores for student loans.

And so, this is one reason I think we're seeing that, of course,

refunds are definitely taking up purchases are not really,

I mean, they're up, but they've been on the floor.

So, they're not up significantly.

But of course, that was when we went under six.

Now we're at six point, or six point one seven per

MBS live dashboard right now.

So, you know, we'll probably see another pullback even in those purchase applications.

Yeah, you know, the real estate market as far as I can tell is frozen.

Yeah.

The impending sales at all time was homes for sold versus homes,

homes for sale versus those sold is like this.

And you've seen the times there is they usually track each other.

So, we've got this alligator gel thing going on.

And that closes, the only way that closes is price.

I don't care what Trump or anybody says.

See, all I can do is because this is price.

I totally agree.

I don't know what your estimate is.

We believe home prices are 30% of them are valued nationally.

And then they'll overshoot, you know, they won't go, they won't go down to

30, they've got to go down to 40 to, you know, that's how it works.

Yeah.

I mean, reversion.

And the question is how fast that's it?

That is the question.

And, you know, so I track 85 markets.

But, you know, in general, I'd say between 35 and 50% depending on where you are.

But in reality, I think, you know, the median home price for where household median

income is right now should be around 250,000.

I mean, that's just, you know, it, and so I think that the speculation in the market

that got started with institutions at the end of the last crisis.

And then mom and pop just got on the bandwagon and went nuts.

And then all that PPP ERC idle loan money went into the housing market like I have a friend

who did an analysis where how many people bought houses between the dates of when their PPP

loan was forgiven and, you know, within that kind of period.

And I mean, the numbers are shocking.

He's been working with the FBI.

I mean, there's so much fraud out there and so much speculation.

And so I think that folks just don't actually realize that this housing market hasn't been

about Joe and Jane this time around.

This is, you know, you've probably seen that Philly Fed study where they said, hey, you know,

occupancy fraud, for instance, did not stop after the last crisis.

It's continued and you can assume that if investors are involved, that you,

you're missing 30% of them.

So like, if you look at Redfin at the peak in 22, 21% investor participation.

So, you know, likely that's much more just based on that Fed paper.

And also, it's very difficult to know for sure the way that Redfin's identifying of this is

an investor purchases by what's on the loan docs.

And we know that a lot of people lie on those loan docs for occupancy.

And I see it today, because I still have a couple of clients and mortgage and oversee their

mortgage books. And I mean, you're starting to see the fraud just show up everywhere.

And, you know, people just went insane from a speculation perspective.

Our analysis shows, I'm sure yours is the same.

The home prices are really starting to come down in the red southern states,

because they're closer to the border.

The blue cities and the blue states, it's slower, but we expect that to pick up considerably,

especially as white-collar layoffs accelerate, which they're starting to.

So, the blue cities are next.

Yeah, they are.

And you know, the Midwest is starting to turn.

You've got inventory accumulation there.

And then you also have some of the bigger areas, like Indianapolis,

showing you over your price declines.

And so, I think, yes, the blue cities.

But there are some blue cities in California that are coming like this.

And yeah, like California.

So, the California Association of Realtors just last month put out an article and said,

you know, this is the lowest price we've seen in 23 months.

And, you know, an aggregate for the 15 cities I track in California,

they're down 2.42% year-to-year in January.

So, and then that's not their peak.

That's year-to-year.

And a lot of them peaked earlier.

So, the West is getting hit really hard right now.

And in fact, a lot of times in the NAR schedule,

the West looks even worse than the South.

But the way mine works, they're about, I mean, they're both

you're seeing the distress.

And, but what you're really seeing,

so we kind of had the rage delisting at the end of the summer,

where people were like, I can't get the price I want.

I'm just going to de-list.

And so, right around when crypto started taking,

right around when I think AI awareness was kind of gaining steam,

you saw inventory just fly to market,

especially in California, especially San Jose, particularly.

There's been eBay, Western Digital, layoffs out there.

But something is going on in California.

I feel like, you know, we're sensing what's happening in the AI narrative.

But I think that there are people on the ground that are really concerned.

And that's why you're seeing that inventory growth.

And it's happening all over the country,

but it's more so in California right now.

So, yeah, I think the Northeast will be the last,

they're the most delusional.

And they think that, you know, that they haven't had a ton of building,

but they don't understand their demographics.

And what I'm seeing in my Northeast markets is there's a program I use called

Property Radar. It tracks deceased borrowers.

And what you're seeing is just really large year-over-year increases in those,

which, you know, Charles Schwab did a study and they said 75% of people who inherit homes

are 70% sell them.

And so, that's what's going to happen, in my opinion, to the Northeast.

But to your point earlier, the question is, how fast?

Like, do we get all the way through 26 with maybe kind of portions of the Midwest and the Northeast

holding on? Or are we going to have sort of a more national awareness where,

you know, it's just, it's, it was gradual, gradual, gradual.

And then it's just boom, you know, like where we see a 12% drop or something like we did in the last

cycle. This is what I don't know.

Yeah, you know, the media is not really following this, but when it's, it's funny.

It's like, you know, I've been talking about this for a while and then it'll happen all at once and

right, you know, all of a sudden people will be talking about it.

What's interesting is we talk about private credit. That's a big disaster happening and private

equity is part of that. We've got the AI bubble and stock market valuations at .com levels.

And we have a housing problem. So like we have three and then forget it, we won't talk about China.

We've done a lot of work on China's blowing up. So it's this, what's going on?

I think it's really scary, but it's almost overwhelming for the average person to understand.

Oh, yeah. Yeah, it is really scary and I agree with you. It's very, they can't grasp it.

And then once this feedback loop start really accelerating, it'll go, we'll be talking about housing,

we'll be talking about the AI, about talking about, you know, contagion from China's economic crisis.

It'll just be overwhelming and things should deflate pretty quickly.

And the Fed is behind the A-ball rate should be at least 150 basis points lower,

but they'll do what they normally do. They'll probably actually talk about raising rates with

this oil shock. And that'll just, the cut of markets will get worse on that immediately.

And of course, they now have covered a blame this all on the Iran war.

This is all in motion before the end of the day. They're going to try to do that in

order, but I'm sorry, it's not kind of flawed. Yeah. No, I totally agree with you.

I mean, that is, and that's what's been funny about me sort of being more aware of this cycle,

right? You know, less cycle. I was just putting out fires, didn't sleep, didn't need, you know,

that kind of thing for years. But this one I can watch from the sidelines and just be like,

okay, this, and I can watch the narratives. I can watch the way it's being played versus what's

the reality. And, you know, absolutely, I think that they're going to blame this on Iran,

but all these things were brewing prior to that. And so, yeah, I, yeah, I mean, it's looking like,

I asked someone the other day, I'm like, who is very much on the right and a believer,

you know, basically, what about the midterms? And, you know, it feels like nobody cares about

the midterms. I don't know in the administration, but what do you, what are your guys' thoughts on that?

Well, I'm calling balls and strikes on this administration. And it's probably like I can tell,

they have really stepped in a lot of do-do and betrayed a lot of promises. And it's almost like

they don't care. And that makes me scared because do they, what do they, you know, that we don't know?

You know, like, they're just like, we're going to get as much done as we can before we,

you know, we lose those seats. It's befuddling to me because the communication from the White House

has been infasible. And, you know, it was, you know, Trump's saying we're in the golden age,

which is gaslighting, talking about, I don't want people's home prices to go down. I mean,

it's like, well, first of all, you don't control the market. Secondly, you're basically telling

half of America, you got to suck it up. And then they'll have yourself, yeah.

Then he insulted, he insulted them and said, oh, we don't want people to have them work that hard

to get at home. But what does that mean? Nothing. Yeah, I wrote a sub-stack. I said, read my lips.

Like, that's what I saw his statement as, like, just a ridiculous statement that he cannot

deliver on, you know, like, there's no way. And so I think a lot of what we're witnessing is K-Fave.

And, you know, and people providing cover. But I agree with you, like, the lack of communication

is wild. It's just wild. And people on the right that are true believers don't want to hear

anything negative. And so when he uploaded 50-year mortgages, you and I both found this laughable.

When he talks about, you know, directing Danny and Freddie to take their 200 billion and go

buy more of your different spreads down. I tried to, I go, look, this is bigger. This is the cycle

is going to over that not there's no. Yes, exactly. I'm like, well, I'm trying to, I've been trying

to protect people. So they don't lose all their money, you know, I just couldn't, like, I could.

Right. And I couldn't go there. Like, I really didn't even want to go there. But I'll never forget,

I was getting dinner. This is when I responded to you about the boss. I can't remember what

we were talking about. But I was like, oh, it was Pritzker. It's like, did we learn from boss

hog or whatever. But it was right around that same, like, spaghetti at the wall ridiculousness,

50-year mortgage. And it's like, you just have to laugh. And none of these things are going to

stick. And it was, you know, it was really funny to me that they announced like this huge announcement,

we're going to buy in BS. I was like, you've been buying it since May. Like, what? You know,

it was like, oh, you're going to finally make a call. And then I haven't had time to look at,

but I heard that the January schedule is out. And they barely bought anything in terms of

in BS, which of course, I'm against, like, it's like a self eating snake when they do that.

But so I just like you, I'm calling balls and strikes. I'm watching what they do, not what they

say, because they are saying some really crazy stuff. Yeah. Are you the one, I can't remember

there was you or someone else over the weekend or last week talked about Las Vegas being like

early warning sign. There's something going on. Was that you or someone else talking about

something going on the Vegas market? Well, I just wrote about the Vegas market. I talk about it

often. But yeah, I think we talked about it, Michael, on your show too, with Jim consular. Yeah.

Okay. So that's, so that's, that's like a canary in the coal mine, right? Oh, yeah. Absolutely. And

I mean, Ed is so much worse than people understand. Like, because so when I was out there in 2023,

I could not believe my eyes, like the amount of existing inventory. And a lot of it is behind

these gated like in these gated community, you'll have like these four lane huge roads and these

gated communities on each side. And there's nobody on these four lane roads. There's nobody

in these communities like these are all like, you know, 55 plus communities because again,

every single city in the Sunbelt believed that every California and New Yorker was coming to

their city. And that's in every retiree. And so you built all this kind of crazy 55 plus housing.

Oh gosh, what's their names? It'll come to me in a minute. But there's so much inventory. And

they were just building up into near Red Rock Canyon. It's not red. It's red. What is it? Sun City.

Sun City is the, they have those out here for 55 and over communities. They call them Sun City.

Yeah, Delwe. Delwe. It's the big developer. But out of Vegas, they were just building up into

the, up into the sky, these horrendous, like they, they thought they were going to get like three

or four million for them. They're way outside of Vegas. Nothing there. I mean, it is just,

it was insane. And on top of that, they were building a ton of build for red like out on the way

kind of the summer line, which is what that development is called. And so this is going to be,

I mean, this is going to be bad, like really bad way worse than 2008 way worse. And the

build for rent was just exploding because rents did go up there. Now, of course, it's coming down

and gaming revenue is down, I think 11% every year. Can I share, can I share a story of Vegas

or both of you? It happened to me yesterday. So it's ironic that we're talking about this. I'm

sitting at a restaurant in, you know, I live in Phoenix. And I'm waiting for a group and we're sitting

at the bar watching an NBA game. This guy's sitting next to me and over here, I'm saying, yeah,

I got, I got some bets on this game. I said, oh, who do you want to win? He goes, well, I got

prop bets on it. And I said, I didn't even know, I mean, I know about prop bets, but I didn't know

how detailed you can go with it. He's like, yeah, I've got this player to score this many points in

the game. And this player to score this many points in the game. And I said, so you, can you,

you can bet on like, how many points in a half and how many rebounds and three points shots,

he goes, yeah, you can do all that. I thought to myself, I'm like, Vegas is cooked. You do all

this on your phone. You don't need to go to Vegas to do any of this. Yeah. Um, what were you going to

say, Ed? And then I like that, that's that competition for Vegas is not good for Vegas. So let's

just, that's just, that's just obvious. Um, uh, what, what was I going to say? Well, give me a

second. It was into the top, this is Vegas conversation. Sorry. Sorry. Sorry. Um, oh, Demick,

we've done a lot of demographic work. And, um, we showed in one of, in our report last year,

in this year, we have a nice chart showing like the stock of available, the population of available

home buyers, um, you know, every year that's added. And right after COVID, it went down because

of the excess deaths in, in mostly old people. But then with the illegals came in and it went back

up. Uh, there is now that we stopped the illegal entry. There is currently running about, and

this is not, these are not my numbers because we stopped calculating excess deaths like at the end

of 24. But Swiss Reeves said in the US, they're projecting, projecting 5 to 10 percent excess deaths

until 2030. They blame COVID, of course. We don't need to talk about that. That, the whole

disaster that is COVID. But let's just assume that's true. I think that number is a good number.

The old, old people are dying at an ex, and it's mostly old people. Yes, there are a lot of young

people that shouldn't be dying and are dying, but it's mostly old. And that's adding to inventory

at an accelerate rate. And so who are, who are going to buy these homes if there's no illegal

landlands? Right. Low prices. That's who's going to buy these homes. That's right. That's, that's, that's, that's,

that's the only way. And it's so funny to me that everybody's like, oh, the institutions,

I look, the institutions are desperate. Like I met with one of the largest ones in September.

And they were telling me I've been tracing price for a year. As soon as leases are up in some of

these saturated markets, like Atlanta, uh, San Antonio, Tampa, they were rehabbing and selling.

It's quickly as possible because they themselves know you don't get a homestead exemption in Texas,

for instance, uh, if you're one of these institutional investors and they can't make it work.

I mean, the property tax, the insurance, it's, I mean, it's crushing them. And so they're

fire selling in very specific cities, not, not all over the country, but in very specific cities.

And so yeah, who's going to buy them? The institutions will buy them. When and if that price gets

better or makes sense, but by the time most of them get there, they're going to be dead in the

water because of what's going on in private credit, credit, in my opinion.

Are, would you say that the institution, institutional investors that have bought

or net sellers at the moment, I'd say they're net sellers. Yeah, they're net sellers.

And you know, you got to think about what happened. They bought, they, they, they want, during the

zero industry policy and then after COVID, uh, for repair of time, that's when they were buying

because the math made sense. What they did, what they didn't bank on was higher interest rates

and then a higher insurance rates, higher tax, like this, all, that, and so the math doesn't work

anymore. So they're net sellers, especially with rents coming down. That, that, that, once the rent

starts dropping, it's over. Forget about it. And so, I mean, it's really over and they cannot,

because that's why it made some sense, but so, so much sense to them is it rents were rising.

And so yeah, I mean, and this is, you know, this is the game. It's like, um, you can paper over a

ton, uh, when you are still originating, uh, and prices are appreciating. You can, you can keep it

all going, but the minute those prices stop appreciating, you know, the warts just start to show

because you can't just throw money at it, you know, it's just, and, and so yeah, I mean, we are at

the point where it's like that point in the, uh, the tsunami, uh, right, where the, everything,

how the water's going to be sort of like, uh, being sucked back from the shore. And I really think

that that's exactly what's happening right now. I have a question for you. We don't get

as granular as you do. We look at the big, the big data and make, make predictions. Um, what's

your thoughts on the Airbnb that that drove a lot of speculation, especially on, I live on Maui,

so a lot of mainlanders would buy properties and, and Airbnb them out, and it made sense for a while,

now it's not making sense. No, and it's you, so I, you know, I've, I've used very a whole bunch of

different, uh, data providers to try to size this issue. Um, but just for fun, go to inside Airbnb,

look at any city, these look like disease maps. Um, Ed, I think, you know, I'm not, I mean, I think

you depreciate it because they look like disease maps, like these little dots are just, it's an

infestation. I mean, it's, it's insane. San Diego, specifically because the veterans started using

their veterans benefits to do this. Like everybody was getting in on this. And so again, they can't

cash flow, you know, they're not getting the occupancy. And then, and there were so many programs out

there. I was actually trying to build a short-term rental underwriting tool in 2023. And, uh, I was

getting data from some of these data providers. And I realized because I have a technology background

too. I was like, this isn't right. What are you guys doing? Like I looked at the code. They were,

they weren't sending us actual occupancy data. They were sending us optimal.

And this is what the banks who, so non-banks, mortgage banks, whatever you want to call them,

this is what they were using to originate. They were using things like air DNA, airbedics,

to say, okay, what's my occupancy? What's my average daily rate? And so a lot of these lenders,

as much as they were just, you know, not bright, they were kind of being lied to by these data

providers from within the industry. But yeah, this is, this is a disaster. And it's just, you know,

and this is why we have so much vacancy. And a lot of these investors, and you know, what I know

from the last crisis, investors are always the first to walk away. And strategically default,

they don't care. They're done. I mean, they're out. They're going to save their capital for another

day if they have any left, you know. But yeah, this is why I told a story in my sub-stack this week

about somebody I was working for, and they sold their house in LA in 2020. They moved to Florida.

They bought 10 homes. Two of those homes were further like the family, like the children,

and then the parents, and the grandparents. But the other eight were for airbnb's. And that was

happening all over the place. And places like Johnson City, Tennessee, like we have one thing

that people come here every year for the storytelling festival. But everybody went into Airbnb. And

you may know this, but what Airbnb did was if you search their website, all you'll get is a

thousand results. And so a lot of your hosts thought, oh, a thousand, a thousand one, it's not a big deal,

but they didn't know, for instance, there are almost 13,000 in San Diego, almost 16,000 in Austin.

Because Airbnb refused to share any data with them at all, these hosts. And so they would

sign up to be a host or buy a home and not realize they were competing with thousands and thousands

of people. I mean, they really, they're not going to have a good, in a few years, people are not

going to look at them very kindly. Because they really did some misleading. Yeah.

Well, then what Maui did, Airbnb became a problem because it started to price locals out of

being able to buy homes, because it's the mainland investors would scoop up these things. And so,

Maui started to crack down on Airbnb's. And they made it, you know, so like, okay, so you live

on the mainland, but you've got someone on property now. And so this is what they do. And so these

are things that people didn't think through. And and and and then the hotels got really angry about

the Airbnb. So they, you know, gave money to the politicians on Maui to like put in all these

rules that make Airbnb so difficult and so on, economic. There's so much that I can tell you,

right now, there's a lot of properties that they're trying to get out of, but they're not. They're

going to have to cut the prices and the people are delusional on this style. And a lot of there's a

lot of old people who think they can sell their home for XYZ price, but it's not going to happen.

Yeah. Yeah. No, yeah. And I track that Maui stuff pretty closely, you know, and also, I mean,

Hawaii right now is the inventory, the price declines. I mean, it's it's a little wild, you know,

just kind of watching it in real time. So again, I think like you say, there's probably a lot of

still delusional sellers like there are all over the country. And they're going to they're going

to wake up and realize they missed the boat. Because yeah, this is these valuations make absolutely

no sense. And also, here's another stat of Fannie Mae reviewed seven million comparables from

originate origination. And I think between 2021, 24 and 55% of those appraisals were over like

were inflated because there were not proper seller concessions were not actually identified.

And so you're going to have a lot of people just happen to someone in my family. He went

to go refinance. You know, he gets an appraisal. It's not even probably eight months since his

origination. There's an issue that was there when he got his loan bought the house. And they're like,

no, no, your house is let a worth 20,000 less. You know, you can't get that refinance. You don't

actually qualify now. And so I think there's a lot of properties that are sitting out there that

haven't had improvements either. And that's that's likely what a lot of these cancellations are about

is the property inspection is done. And people are like, no, no, thank you. I don't want to deal with

you know, a foundation issue. I don't want to deal with a roof issue, things like that.

Yeah. You know, one thing we haven't talked about that's been talked about for at least five

years is commercial real estate probably. And what the banks have done is extended and pretend.

In fact, at the end of 24, the Fed put out a, you know, piece about that. And that's that is,

they've been able to paper over that, but that's also another bomb waiting to happen once they

start realizing those losses. So these things are all accumulating. Yeah. Yeah. And Ed, I wrote,

so I wrote for I write sometimes for Unica's research and I wrote a piece yesterday.

Had you heard what happened at Walker and Dunlop? No. Is this Bloomberg didn't cover it?

Wall Street Journal didn't cover it. And I'm like, wait, we're all we're doing is talking about

cockroaches right now. Why aren't you covering this? Well, so Walker and Dunlop, um, they found a

massive fraud $134 million across three Freddie portfolios, uh, Freddie. And so they had to

for their Q4 financial side to take a $29 million right down from what I can tell they renegotiated

paying the 50 million back at another time. But so far, they've had repurchases of over 221 million

due to fraud. The only like some random AI website did an article on it. And the real deal did,

but nobody's talking about this. And I mean, this is huge. And, uh, and that was in sorry,

to be clear in their multifamily portfolio. And so I think that there is a ton of fraud in

multifamily. And you know, that wasn't the first blow up there. Meridian capital a couple of years

ago. Um, they made, they sent Brian Brooks over there from former head of the OCC to fix whatever

was going on. But we didn't get a lot of details about it. They're now, um, they're now

back originating Fannie Freddie loans. But it was wild to me because, uh, speaking of commercial,

I mean, this is, I mean, it is so bad. And I, and like, I've driven all over the country to

these central business districts and looked at them and it's way worse than what anybody is saying,

you know, it is like the vacancy numbers are lies. Uh, they're absolute lies. Um, you can just see

it when you're walking around in these places. A lot of times it's like the people have moved out,

but they're still leasing the property, you know, but then a lot of these companies that I dive in

that are doing things like that are becoming an anchor tenant. They're an economic trouble. And

so, you know, what happens when they file BK? So that this, this commercial is so huge and so bad.

And it's wild. Like, like you say, I think everybody had a gun to their head about extending and

pretending, but we've just, uh, and you know, who was a big part of that was private credit. They

did like 20 to 25 percent of, um, origination and commercial last year. And so now that they

can't do that, you're going to have a lot of folks that aren't going to be able to refinance.

And that maturity wall is going to actually matter. Right. So we have all these layers of problems

that are just going to, I think it's, it's, it's going to be all of once and it's going to be,

you know, some day Bank of America is going to write down like 15 billion people are going to be

like, what just happened, you know, something like something like that. It's going to be crazy. Um,

and it's coming because, uh, you can see it in the funding market. You can see it in the real economy.

These little cash flows of Joe six pack eventually add up this K shaped economy. People say,

oh, it's okay with a new economy. The middle class doesn't matter anymore. It's the top. It's like,

that's just absurd because absurd. Yeah, absurd. These little cash flows add up. And the feedback

loops are in motion. And I don't care about, you know, the, you know, the top 10% or 50% of

consume consumption. Well, that, that tells you how bad this is. That's not, that's not a good sign.

That's a bad sign. That's right. And, and you know, what happens when they can't get their funds out

of one of these, you know, what happens when the general partner comes and tells them, hey, LP,

you're wiped out, you know, like you're starting, in my opinion, you're starting to see the top of

the cake. It impacted. And, and they're pulling back in, in, in play. I mean, one of the things,

I look at my markets every week and luxury has just been sitting out there for a year. I mean,

massive luxury all over the place. It gives me gold coast vibes, you know, like we're going to be

doing a lot of bulldozing of some of these massive mansions. And a lot of, like, it's crazy,

like during this boom, I saw massive homes, like priced over 13 million, 20 million built on

spec. I mean, that's insane. I don't know. I don't have, I don't have the courage to do so.

Like, just build it without a buyer. Like, why, and, and I mean, just go all out. And it's,

you've got these all over the country. And it's wild. And so yeah, I, you know, it'll,

if it all happens at once, we are, I mean, people are going to be, yeah, there's going to be

lost. Yeah, this is, this is teeing up to be. And again, it's a question of when,

when this starts to really roll down, you know, the snowball turns into a ball that

returns into an avalanche. And I think it's this year, you know, and the gating, the gating,

these gating of these funds is a big deal. I don't, and, and people think it's, it's, they don't

understand what's been percolating underneath the surface well before that. So that, this is a big,

big deal. And the fact that black rock had to do it, it's an even bigger deal. Larry, Larry,

I think it's, Larry, I think it's firing people as we speak. I get into it. I mean, that's what he's

doing right now. Yeah, I mean, the irony, right? Like they were, we brought in black rock to help

with our asset disposition. And, you know, and we'll actually, we didn't get a choice after tarp,

like, you know, we were told, who was going to help us win? We're going to, who we're going to pay.

And, you know, so that's ironic to me. And from my personal experience that, you know, here they

are, kind of, really, they're taking it on the chin. And back then, they were the ones that

called in to save us. Well, here's the interesting thing. The black rock fund is mostly institutional.

And so that is, that is credibility concerns because, you know, just, even though it's a small fund

compared to all of black rock assets, a lot of their institutional investors have different

products with black rock. So if this, if this becomes a problem, it's going to cause potentially

black rock AUM to, you know, either stop growing or decline a little bit, which will be not good

for Larry and the stock, because this is a reputation risk problem. Absolutely. Totally agree.

It's going to be wild. Yeah. Can I ask you guys something? Can I ask you guys something

in relation to black rock and black stone with, with this limit on withdrawals that came out

the end of the last week? Would it be safe to say, is that, is that considered a bank run that you

can't get all your funds out? No, it's not a bank run. It's, it's a bank, a bank run is, you know,

that would be systemic. This is not systemic. This is just like, they'll tell you you should have

read the fine print and suck it out. That's basically, you know, that's the, and the Fed is,

no way, going to bail these guys out. If they did, it'd be huge, outcry. This is not systemic.

It could, it could, it could mistasticize to the commercial banks, which could become systemic.

A black rock fund gating is not systemic. It begins potentially systemic issues, but in and

of itself, it's not a systemic problem. Melody, what do you think? No, I agree. But I do think

there will be contagion. And so, you know, and it's always, it's always what we can't see,

you know, where it starts usually, is that there's a ripple effect that you don't, you know, you

didn't realize that, you know, this is connected to this. And so, and there's just so much, it's

happening. And, you know, so much shadow lending that so many of these private credit companies have

been doing lending to retail, like doing these crazy, like personal secured personal loans and

things like this. And so, I've got an idea of who might go next, because I've been looking for

our mortgage MFS here in the United States, because I just know that there is one, right?

And I think I've identified one. But I, you know, we've now seen Barclays being included in a

couple of these things, like Jeffree's. And I'm going to be digging into Barclays soon, because

they've got a company called Best Egg that I think is probably, it's probably, it's probably

going to be, we'll be hearing about that in the next, in a little bit, basically.

Jeffree seems to be in a lot of trouble. That stock is giving almond signs, that's something that's

coming there. You know, I think people should understand Wall Street, it's different bubbles,

but it's all the same way it's created. They create, when I was at HSBC in the early 90s,

it was commercial mortgage-backed securities were kind of a new thing, where they would

slice and dice, and the game there was, the buyers didn't understand the securities as well

as the originators, and so that the bidass spread was wide. You made a ton of money selling these,

you know, these complex bonds, but then, you know, Bloomberg came along and the bidass spreads

narrowed, and then they became kind of like plain vanilla. And so, and then we had the subprime

CDO complexity, it's fat fees and fat spreads, and now we have private credit, and that's so okay,

these guys, the party was so good because what you didn't know was these guys were making money

handover fest and fees, carry bonuses, and they had an incentive to like loosen the underwriting

standards because growth, it's, it's, it's, it's, it's controlled, at the end it always becomes

controlled fraud, they just, right, that's what happened in this, you know, at the end of the

wild crisis. Yes, I totally agree. I mean, this, I mean, I think, absolutely, this is a cycle

where you're at a certain point of the cycle where they've just tried to get every single person

in the door that they possibly can, and then, and that, you know, they've been putting out little

small fires here, there and everywhere, but now we're at the point where, you know, they're not

going to be able to hide. So if they're not going to get billed out, and, you know, and I, I,

I feel that way, I agree with you. I think there would be way too much anger.

Yeah, well, and the Fed, the Fed, the tarp thing, I give the Fed credit, the tarp, not the tarp,

the, the, uh, banquerm funding loans. Yeah, yeah, the prevent, prevent bank runs was very smart of

them. And what they were guaranteeing, because they, they said, hey, these are, you know, um, you

know, bonds held the maturity. So they don't need the capital, but the perception is, so we're

going to lend against it. So that was an interest rate duration risk that they, they're not going

to give loans for credit risk and, and, and, and fraud. They're not going to bail out fraud. And if

they do, it's the end, it's the end of this system as we know it. So I think the Fed is not going

to bail these guys out. People keep saying that. I don't think it's going to happen.

And it's, it's just so interesting to watch. You know, I'm, I, I come in and private credit. I've

noticed a new influx of commenter in my, in my, in my, uh, comments. It's a private credit guy.

Tell me I'm stupid. I don't know what I'm talking about. And, and it's like, he doesn't understand,

no, you're in a silo. You're not, uh, 30, you have no idea what's coming your way. You're in a

silo. You've had a good gig. Your gig is ending. And I don't care about the details of the,

the details don't matter. You may understand better than me, but I know that liquidity is leaving

with a lot of fraud. And it's going to shoot question. Shoot first, ask questions later. Redemptions

are coming. And these calling investors stupid. Everyone's, you don't get the game, my friend.

He's in a silo. He's in a silo. I'm probably young, uh, very young, you know, of a certain age.

And, um, that age where, uh, we all think we know everything, um, you know, and I, and, and I

remember being in my own silo, like I never, I, I didn't have, I didn't have anything at stake.

And, but my, uh, bosses certainly did, you know, but, and I was always the one that was kind of like

the negative nilly around them. Um, they were super positive. But for years, people didn't really

accept what was going on, you know, and, and that's what's kept me from losing my mind. This time

and round is that I saw how delusional my industry was last time. And, and so I was prepared for

how delusional they would be this time. Yeah. People, when they sit in these seats, they're in a silo,

because a lot of people that were in these seats during the subprime crisis and the CD, they,

they didn't see it coming because they were making a lot of money. They didn't understand,

they didn't step back and understand, you know, that everything that they're doing was built

upon leverage and collateral. And once, once, once financial reflexivity starts to go the other way,

it's, there's no, it doesn't matter how well structured your deal was, it just, it, it, the,

the game is over, the cycle's over and get out of the way. They just can't see it. They never do.

So true. I want to just, uh, one more thing if you guys have time, uh, in relation to, um,

you know, I was telling Ed last time about Mitch Vexler and Travis's, uh, with the, uh,

the, uh, the real estate fraud. Emily, I wouldn't, if you wouldn't mind just sharing a little bit of that

and the, uh, propping up the, the values with the municipalities to increase the tax revenue.

Yes. So we know that, um, you know, through the American Rescue Plan, so much money went

out to the municipalities. I mean, on godly amounts of money, that's what they used to do these

programs for, you know, the immigrants, the down payment assistance for housing. You know,

you can get 25,000, 30,000 down payment assistance. Um, and all of these, uh, they all got addicted.

And, and what did they do? You know, they didn't do smart demographics and, you know, they just

looked around them and said, Oh, 100 people are moving here every day. So that means 100 more people

paying property tax or whatever. And so the central appraisal districts in, uh, Texas,

um, basically committed fraud. Um, they replaced, I think like 60,000

valuations with different valuations. Um, you can, and I mean, my friend Travis and Mitch

just started diving into this and Travis, you could see that homes were selling for less than

their tax valuations. Actually, our assessments, I should say it were their tax assessments.

And so they've just started going after all these small cities, city councils, uh, and, and approving

this fraud. And my friend Travis actually got, uh, costed by one of them. So it's, it's, it's,

it's, but it's nuts. And it's, and it's, and it's these little fief jumps. Um, and I think this

is happening all over the country, not just Texas, um, where people stopped paying attention

to what was going on at their city councils. And a lot of stuff happened that they don't realize,

and they're waking up and getting these assessments in the mail. And they're like, this is not right.

And you can, you can protest, but they don't have to, they're like just little dictators. They

don't have to accept your protest. I've heard stories about this happening on Maui as well.

Same, you know, comms are doing this and you come out and you assess me here. And I'm like,

what's people like, what's going on? Right. And then they go and they, they, you know, they,

they buy a complaint and nothing ever gets done. I mean, this is, this is where we are. And so,

there's, this is, as home prices come down nationally, this is going to become a big problem.

Yes. Oh, yes. Yeah. And I think the counties, so the counties are going to, um, because we had

a big shadow market this time around in the housing market with seller financing very much like

that 80s. This is stuff. This will all come out. Um, but I think the counties, uh, are going to be

drowning in these foreclosures, uh, because, you know, they, they can foreclose if you have

delinquent property tax and, and Texas, they typically will wait a year. But this is, I mean,

they're going to be drowning in these properties that like during the last crisis, these were on a

bank's balance sheet or on a balance sheet where the servicer would have to go out,

mow the yard, do winterize the property. And that for a lot of these investment properties,

that's not going to be true. And so you're going to have a lot of, um, you know, safety and

soundness issues and co-violations and all kinds of things. And that was one of the, one of the

ways the counties made it out last time is they, they freaking, um, they, they, they, they, they,

nickled and dined the servicers like if you had a vacant property, if you didn't register it for

like thousands of dollars, you could get a thousand dollar a day fine. Um, and of course, you

had missed this in the mail. I had my president come to me and be like, I owe two million dollars in

Pasco County. I mean, he didn't, but he thought they were going to come after him specifically. I mean,

so this is how the counties made it last time. But because a lot of these properties are not going

to be on, um, traditional balance sheets, this is going to overwhelm them. And, uh, so,

I first see, unfortunately, the government getting into, um, owning homes at some point. Um,

you know, we've already seen kind of the FDIC hold some of that stuff. But, uh, I think they,

that Fannie and Freddie might have to get in on this, which will be crazy.

I think you might be right. This is the coming federal problem. The counties can't deal with it.

Yeah. Yeah. So did I answer, okay, Mike? Well, you explained a lot better than I was trying

to explain to Ed while we were recording. And I'm like, you know, I can't, I can't, I'm butchering

this. I'm not doing it justice. So I was waiting for this moment. Uh, last question of both you

guys, uh, and whoever wants to go first, what is your, what is your outlook for 26 and 27? Just

overall the state of the economy and, and United States. I'll let echo first.

Yeah. So we put out an, uh, an economic report. We see three risk factors, which we've talked about

housing, the AI bubble, which is like the dot com valuations and then China. So we see, you know,

your classic, uh, recession, 50%, 40%, 50% drought on the stock markets. Um, uh, then the Fed will,

will do what it's going to do. There'll be a fiscal response. And, uh, at some point, you know,

as, when the news flow is at its worst, you're going to want to get bullish because the second

derivative is less bad. But we're not nowhere near there yet. So, um, that's, that's what I see for 26, 27.

Uh, the Trump administration is going to own this. They had an opportunity to let this unfold in

25, but they decided not to. They're going to own it. They could have explained this to the American

people. Our policies are getting rid of fraud that propped up the economy and now we're going to

bring them in. But they didn't do any of that. So it's, they're going to own it. And that's just

the way it is. I mean, what, even though a lot of this blame lies on the, it doesn't matter at

this point, they're getting bigger. Yeah. I agree with that. And so, you know, from a housing

perspective, I think we're going to, I mean, I think the spring could actually get, uh, even sort of

more disorderly than last year and some of the Sunbelt states. Um, the one thing that I think

is going to be interesting is that you've got those guardrails on the FHA program now. Um,

so serious delinquency is taking up, but they're still going to be able to do, uh, some short term

forbearance. And so in terms of timing, um, we're going to, we're going to see for closures continue

to increase. And then probably after around June of 26, uh, well, we're going to have a more

sizable population. And then probably after the fall, that's when all forbearance would probably

run out. Um, you're going to have a material for closure or population. But it, it doesn't matter.

You have so much speculation and these folks, because of those raising, those rising property

taxes and insurance, people that they just cannot simply afford these homes. And so, you know,

whether we get through the midterms before we see that rapid acceleration, this is something I

really focused on. Um, but I'm just calling balls and strikes because, uh, there's so much going

on. It's impossible to see exactly how this could all go down, but it's going to be dominoes.

It's just a matter. When does it start? Melody, one thing I want to, uh, throw your way that I was

thinking about, you know, there's been this hot, you know, the real estate markets froze and

unrealistic price expectations because a lot of the sellers are older. If the stock market starts

to really go down, these, these happy boomers will get scared and maybe this, that's the feedback

loop because right now the stock market is only 2% from its highs. They think everything's fine,

but if the stock market goes down 30, 40, 50%, and then there, that's when this feedback

loops begin because the older generation is the one that's not realistic about the pricing.

100% and if we get a stock that will be a trigger and you're already hearing them, those very well

off boomers that own multiple properties say, I'm worried about the stock market. And so, yeah,

that will, that will be a huge if that happens. I think that's a massive trigger. Yeah.

All right. I'm glad you're agreeing because that's what I was thinking. Yeah, absolutely.

We're talking over to you. We're, um, Mel, Mel, where can people find you?

Yeah. Um, can find me on ex-twitter at m3 underscore melody and m3 melody sub stack.

Ed, you can find me on x at doubt Edward, uh, our web, our institutional website is finance

technologies.com for pH and I have a personal website at doubt.com.

Thank you to you both for doing this. Uh, I look forward to continuing to follow your work. And,

um, you know, we, we, we have to do this again. Yes.

Thank you. Thanks, Mike. Thanks for putting this together.

Thanks, Mel, Eddie. Thank you. Mic drop.