Eleventh Edition - Harsh Reality Newsletter

Good morning, everyone! Today is the Eleventh edition of the "Harsh Reality" newsletter! A lot has happened over the past couple of weeks and we do apologize for the short break in our editions; but we're back on track and excited to be here with you! If you're new here, welcome to the fight. If you want to see previous editions of the newsletter they'll be available at the link below. And if you want to join us on our social media platforms click on those links as well. Our intent is to always provide you more value than we receive so thank you for being here and enjoy the show.

Weekly Dose of "Harsh Reality"

New Federal Housing Agency (FHA) Rules regarding Loan-Level Pricing Adjustments (LLPAs) are set to go in place on 1 May 2023 (tomorrow). Under these new rules borrowers with good credit and higher down payments will be forced to subsidize borrowers with bad credit and lower down payments.

Harsh Reality - Class warfare & division continues from the left. We must all remember that any time the government "gives" someone something, it has to be forcibly taken from someone else first. That obviously causes division within our society which is already extremely polarized. It's also fraught with consequences that most people don't consider or understand. Here are a few things to mull over before you cast your ballots next year.

As you've read in previous editions, we here at Harsh Reality are proponents of house hacking for the younger and more agile folks out there. If you're new here or don't recall us discussing house hacking, refer back to the Ninth, or the "Million Dollar Edition" to get caught up. One of the main components of house hacking includes FHA loans. What this rule does is make FHA loans more expensive for responsible borrowers while reducing the cost for irresponsible borrowers. Guess what happens to the renter class when FHA loans become more expensive to service? Those costs are passed along via higher rent. Anyone interested in higher rent payments?

The new rules also incentivize irresponsible borrowing which gives me flashbacks to 2008. Without getting into all of the nerdy details, irresponsible borrowing led to a housing crash that took place from 2008-2012. Banks using collateralized debt obligations made it worse; but the initial problem was irresponsible borrowing. In other words, people with no business owning a home, and no financial education, were given access to loans they could not afford and did not understand. When those loans went bad, it caused a huge ripple affect through the entire world. We do not need to revisit that.

Finally, you should know that savvy operators will always beat the government. This system hasn't even taken affect yet and it's already been defeated by operators in the investment industry using loan recasts. Unfortunately for renters, these recasts will not impact the market-wide affect of the policy so market rent is still going to increase. So the government's intentions are defeated, while hurting the renter class all in one shot.

If you're in the market for a home and are looking to defeat these new rules, watch the video below from our friends at Bigger Pockets. It'll give you access to the lower rates while still utilizing a 20% down payment structure.

Shit That Matters

Fed To Meet on 3 May 2023 - The Federal Reserve will meet on 2 & 3 May to decide whether or not a 10th rate increase is in order.

Harsh Reality - According to the Chicago Mercantile Exchange's FedWatch Tool, there is a 79% probability of a 25 basis point (0.25%) increase in the federal funds rate. As we've discussed in previous editions, another increase will continue to drive credit/mortgage/unemployment rates higher; while driving the cost of assets down. It looks like it's going to be a rough ride ahead so if possible, limit big expenditures to safeguard yourself from the economic downside to come.

Russo-Ukrainian War - Russia continues it's assault on Bakhmut as Ukraine forces have likely missed their opportunity to fall back from the city. Summer offensive talk on both sides continues.

Harsh Reality - Bakhmut has fallen. The vast majority of the city is under Russian control and the Ukrainian forces that do remain in the city are likely trapped. The exfil routes to the west are all within indirect and small arms weapons range from the Russians which would lead to a mass casualty event if the Ukrainians attempted to break contact.

President Zelensky held a call with China's Xi Jinpeng on Wednesday to discuss peace with Russia. We here at Harsh Reality are of the opinion that the call may have been an attempt to save whatever Ukrainian forces remain in Bakhmut, although it does not appear that Zelensky was successful.

Lastly, a huge oil reservoir in Sevastopol, Crimea was struck by a Ukrainian drone yesterday. It's a bit surprising that the Ukrainians were able to hit such a heavily defended area; unless of course they had help from NATO allies.. *Stares In Conspiracy Theory* Below is a picture of the after affects and we'll have a video post on the Harsh Reality facebook page today showing the destruction.

Iran Seizes Oil Tanker - The Iranians have seized a Turkish flagged oil tanker enroute to the United States..

Harsh Reality - This seizure was in response to the U.S. seizing an Iranian oil tanker enroute to China; so the fuckery continues. The only difference in these two actions is that the U.S. was enforcing a UN sanction on Iranian oil; the Iranians were just responding because they were pissed.

Military Coup In Sudan - Rapid Support Forces (Rebels) attempted a military coup over the military leadership of Sudan.

Harsh Reality - This is all but over already. The RSF unsuccessfully attacked various elements of the ministry of defense (Think our Pentagon building), and were successful in seizing control over the airport in the capital city Khartoum for a brief period of time. The Sudanese military, backed by the Egyptian military, is actively breaking this coup attempt and it will be wrapped up in short order.

Always Provocative North Korea - Following a defense summit between the U.S. and South Korea, Kim Yo Jong, the sister of North Korea's dictator, called Joe Biden "mentally deranged," and "an old man with no future."

Harsh Reality - She's not wrong.. She also promised additional nuclear tests and exercises in North Korea. This is par for the course with the North Koreans; however, it's hard to find a stable region anywhere in the world right now, which should be concerning to everyone.

Honorable Mentions -

U.S. Debt Ceiling - The debt ceiling concerns will come to a head some time in June as the U.S. is in danger of defaulting on its debt. The republican led House put a bill on the table but the democratic led Senate is likely to balk at it. We're over a month away so politics continue. We'll keep you all advised on the situation as the time continues to run out.

Weekly Market Recap

Shit That Doesn't Matter

NFL Draft - Bryce Young was taken as the first overall pick in the 2023 NFL Draft; and the SEC took home the most selections for the seventeenth consecutive year.

Harsh Reality - We love us some football here at Harsh Reality; but in the big scheme of things, it's still "Shit That Doesn't Matter."

Tucker Carlson & Don Lemon Are Out - Both of the news anchors were "released" from their respective agencies last week.

Harsh Reality - Potentially great news for Tucker Carlson, not so much for Don Lemon. Leaks and posts from the personalities show that both were fired. We here at Harsh Reality think that this was an unspoken stipulation of the $787M settlement from Fox News announced a couple weeks back. More on that settlement and what it means from our friends at the PBD podcast:

Bud Light Sales TANK & Marketing VP Fired - Bud light sales declined significantly since the company rolled out a pro-trans marketing campaign with Dylan Mulvaney. The Marketing VP responsible for the campaign has taken a "Leave of Absence."

Harsh Reality - No surprise here.. "Go woke go broke" is a thing when it comes to businesses in the U.S. given that the vast majority of the population doesn't support woke policy. Liberal news agencies are doing everything they can to spin the situation which just makes it look worse. Here are three links showing liberal news agencies trying to redefine what "firing" means: Newsweek, MSN & Yahoo News.

That's A Wrap!

Thank you for taking the time to read this edition of "Harsh Reality." Each edition will only get better going forward so if you got value from this content please consider inviting your friends and family to subscribe using the link below. Once we make it to 10,000 subscribers this will transition from a weekly to a daily newsletter and we need your help to get there! Also, hit us on our Facebook page, Twitter, YouTube channel or Discord server to keep the conversation going! We welcome your feedback and discussion!