Compliance Issue or Unfolding Conspiracy?

I am not a conspiracy theorist, but please help me understand this piece of news that just dropped.

On March 3^rd, 2022 Elon Musk tweeted out the following:

“Important warning: Starlink is the only non-Russian communications system still working in some parts of Ukraine, so probability of being targeted is high. Please use with caution.”

Yesterday (March 23, 2022), it was announced by Reuters that “The top U.S. securities regulator on Tuesday urged a federal judge not to let Elon Musk escape an agreement requiring that his Twitter use be monitored, which the Tesla Inc (TSLA) chief executive considers part of a campaign of harassment.”

Now there are two sides to every story, but I find the timing of this one very interesting. I was worried about the Starlink satellites being shot down by Russia. SEC compliance issues based on his Twitter account never crossed my mind.

Now, just because Elon Musk has done an incredibly good deed, he does not have the right to be above the law. I want to make that very clear. The timing just seems a little off to me.

I know liberal and conservative media outlets have VERY different speculations, but before I formulate any opinions, I want all the facts. The news just broke yesterday, and facts have a way of taking a little longer to burst out of the “breaking news!” click bait articles.

In the meantime, I am going to share some REIT information that is a little closer to home this morning. We will take a short break from the weight of the world.

REITs in Our Backyard

I recently added homebuilder coverage to our research platform recognizing that many REITs (that we cover) are tied very closely to the residential housing sector.

For example, two commercial mortgage REITs we research – Broadmark Realty (BRMK) and Sachem Capital (SACH) – provide capital to residential homebuilders.

As you can see, these two REITs have underperformed year-to-date, due to elevated headwinds of rising rates and an expected slowdown in home sales.

Today, new home sales for February will be released, and analysts are forecasting a slight increase to a seasonally adjusted annual rate of 810,000 new single-family homes (from 801,000 homes the previous month).

The National Association of Realtors reported last week that existing home sales fell 7.2% last month, as buyers face a “double whammy” of rising mortgage rates and sustained price increases, according to Lawrence Yun, NAR’s chief economist.

I hate to mention the word “Recession” here in this blog, but this current environment reminds me of 2008 when I was working alongside a large regional homebuilder that had 500 houses in various stages of construction.

I witnessed firsthand the so-called tsunami called “the Great Recession” that wiped out considerable equity (for me) and most every owner of residential or commercial property, including REITs.

We’re monitoring the homebuilding sector closely, as we recognize there’s always opportunity in the chaos. Rising rates will certainly impact the housing sector, but we see plenty of opportunity in categories like net lease, healthcare, and even lodging.

Last but not least, here are yesterday’s top movers:

(Click on image to enlarge)