Why hasn’t the housing market collapsed?

Well, for many homeowners, the prospect of moving is now financially infeasible. As a result, the existing home sale market is just as messed-up as the new home sale market, which broke around the time of the GFC. While great, perhaps, for house values (because it keeps an artificial lid on supply), this phenomenon isn’t ideal for promoting a flexible, dynamic economy. What if you have to move for that new opportunity or even just want to? Cheaply financed housing has become like a pair of golden handcuffs for aspiring American families.

For what it’s worth, this is something I actually got right. Last summer, I appeared as a guest on Harry Melandri’s Real Vision Podcast The Next Big Trade and argued that despite all the macro headwinds for real estate, housing, in particular, should do ok because of the structural problems in the industry. The market started picking-up on this idea at the beginning of the year and the homebuilders have massively outperformed despite a huge decline in transaction volume.

Why has the climate change
discussion has gone nowhere?

Well, we live in a crazy world where those who stand the most to lose from climate change are the lowest emitters and those with the least capacity to finance green investments. In other words, what’s standing in the way of meaningful climate change action is a massive global incentive problem. Are relatively rich countries like the US, UK and EU really going to step up and finance green energy infrastructure for the benefit of the developing world? With all their massive debts and domestic problems, could they even do so if they wanted?

Unlike with housing, this is something I got really wrong. Back in 2021, which feels like forever ago, I was really excited about the potential of the carbon market. Given what looked like a global consensus on the necessity for dealing with the climate change threat, I thought the carbon market might be one of the biggest opportunities in the world. What I didn’t see then was the impact that war could have on the green energy conversation.

The carbon market has really struggled since the outset of the war in Ukraine. I guess this should come as no surprise. Even back in 2021, the global “consensus” on climate change was a weak one. Only really in the EU did we see meaningful laws on the books. In general, we humans have such a hard time thinking long-term and when something like the specter of war appears on the scene it becomes even harder for us to look past the moment. The war has made the already difficult task of scarce resource allocation even more so for our mostly financially illiterate political leaders. This reality, coupled with the economic stress coming from our fight against inflation, is really bad news for the carbon market and our fight against climate change.

Are the Red States really
turning Blue?

I think so. Not only are places like Texas catching-up when it comes to green initiatives, they’ve also been busy adopting the anti-business platform of liberal dominated states like California and New York. Dallas, for example, recently voted to restrict short-term rentals. This is something to watch closely.

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