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Eisman slams Zillow; US Consumer Mixed; 30-Yr Hits Record

By Vy Phan

August 18, 2019


News of the 2yr/10yr yield curve inversion founds its way onto the tablets and screens of moms and pops across America. Headlines like “How the Recession of 2020 Could Happen?” graced the pages of major publications from the New York Times to the Drudge Report.

A year ago the prevailing view was the era of low rates was over. We find ourselves now testing record low 30-year US Treasury yields, and potential issuance of 50-year and 100-year bonds. Mohammed El-Erian is raising the concern that with the panic headlines we might be talking ourselves into a recession.

The health of the US consumer is mixed. Confidence remains high (although lags stock market volatility and news chatter). Retail spend figures surged in July driven by online spend, beating expectations. However, broad-based brick-and-mortar retail such as Macy’s and other brick and mortars missed earnings substantially.

In industry news, Steve Eisman, famed for shorting subprime mortgages, took a direct shot at Zillow’s new business model. We highlight the excerpt of Steve’s comments, particularly as a number of FinTechs are entering the market for intermediating residential homes:

Zillow has one of the most flawed business models I’ve seen in a very, very long time.

The part of it I find the most problematic is what they call, I believe, their iHome business, their internet buying business, where they actually go out and buy homes and flip them. I actually think the company doesn’t understand the real risks of this business, which are massive.

There are thousands of mini-markets all over the United States. They’re all local. They’re all extremely different. They all have incredibly different risks.

This is a capital-intensive business. I know only one thing for certain. Between now and five years from now, assuming the company has some level of success, there will be massive problems that they will uncover. I’m sure there'll be write-downs, I’m sure there’ll be impairments. And I’m convinced that the investor base doesn’t have a clue about what this business is really all about.

In financing news, former SoFi CEO Mike Cagney is reportedly close to raising $100 MM for Figure at nearly a $1 Bn valuation – less than 2 years after its founding. Cagney is also keynoting the upcoming ABS East conference (we’ll be there too – reach out if you’d like to meet). Rumors are that Cagney will announce its first major blockchain transaction.

On the regulatory front, PeerStreet co-founder and CEO Brew Johnson penned an article in Forbes making the case for opening up alternative investments to non-accredited investors. (We agree.)

Industry Update

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