OTW #48: End of 6% real estate commissions?, More gold signals, and more.
Important financial stories to check out over the weekend
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1. Lots of money on the sidelines.
From May 2022 to November 2023 (the latest data available), retail money market fund balances have nearly doubled:
Antagonist’s take
A common refrain from financial analysts is that this much cash on the sidelines is a bullish sign.
Their argument stems from the idea that investors still have money left to invest. If they take that cash and pour it into stocks, the market will rally even more than it already has this year.
I’m not convinced that this conventional wisdom is so clearcut, however.
Take a look at the chart again, especially the shaded areas. Those represent recessions.
Notice how surging money market balances culminated in recessions. That makes sense. If people aren’t spending money or investing, the economy struggles.
Of course, it’s easy to spot this in hindsight. In real time, it’s impossible to identify the moment that money market balances peak and a recession begins.
My point is that lots of cash on the sideline does not necessarily equal a bull market, despite what conventional wisdom claims.
2. The end of 6% real estate commissions?
A recent ruling in a landmark antitrust case could signal a shift in the traditional 6% real estate commission structure. Historically, the seller has paid this fee, which is split between the seller’s and buyer’s brokers.
The verdict, involving a $1.8 billion judgment, challenges the status quo of commission rates and may lead to more negotiable and flexible arrangements. For example, in New York City, a new policy is set to decouple commissions, allowing for varied compensation models.
(Source: CNN Business)
Antagonist’s take
This potential overhaul in commission structures could significantly impact both buyers and sellers. Sellers might save on fees by only paying for their agent, but buyers might face increased costs if they choose broker representation.
If you’re buying or selling a home, this shift will require you to be more informed and proactive in negotiating commission rates as well as understanding the implications of evolving industry practices.
3. On the cusp of a gold rally.
In last week’s OTW, I shared Brian Livingston’s article that explains why the traditional 60/40 portfolio is outdated and ineffective.
Tavi Costa provided more evidence in a recent post. Since a 60/40 strategy (i.e., 60% stocks/40% bonds), does not allocate any money to gold, it misses a tremendous opportunity for both portfolio growth and protection:
A monthly close at an all-time high would likely mark the beginning of another secular move in gold.
This is yet to be propelled by two primary buyers:
Central banks, which, even with their recent purchases, still own 80% of sovereign debt relative to their balance sheet assets.
Traditional 60/40 portfolios, currently with 0% allocation to gold, are yet to redefine their mandates to incorporate the metal as another defensive alternative.
This is an opportune moment to actively seek ways to express this view in the market.
Other precious metals like silver and the mining industry remain highly distressed and are likely to emerge as the largest beneficiaries of this long-term trend.
(Source: Tavi Costa, partner at Crescat Capital)
Antagonist’s take
For the last several weeks, I’ve been writing about the importance of owning gold (see here, here, and here for recent posts).
In our upcoming December Blend Portfolio issue, I’ll be highlighting a new stock that has historically performed even better than gold itself when the metal rallies. The market is currently undervaluing the company, so it’s a great time to buy.
To receive this recommendation and get full access to the Blend Portfolio, upgrade to a premium membership here:
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Thank you for reading, and have a great weekend!
Jason Milton
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