The Iran War is Masking Economic Problems: Why Housing is So Expensive | The Weekly Wrap

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Let's do this.

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Steve Eisman (0:30)

Right now, the only thing the markets care about is the war in Iran, and the news on the war keeps moving at a fast and furious pace. Hopes for a peaceful resolution seem to be fading. Another week, more bad news for private credit. And this process can lead to a recession. We are now going to show an interview I did with the CEO of a home builder, Meritage Homes. What are the major costs that prevent home builders from delivering, you think, homes at a lower price?

Phillippe Lord (0:55)

The reason affordability is so problematic in our country is because local regulatory bodies have no incentive or motivation to help us to bring land to the market in an affordable way. It's been happening for decades, but it's gotten worse and worse and worse, and there's been no solution to it.

Steve Eisman (1:23)

Hi, this is Steve Eisman, and this is another edition of The Weekly Wrap. This is for the week ending March 27th, but recorded Thursday night, March 26th. In this week's wrap, we will discuss one, the latest on the war in Iran, two, more news on private credit, and three, we will then cut to an interview with the CEO of Meritage Homes, symbol MTH, a stock I recommended earlier this year. Right now, the only thing the markets care about is the war in Iran, and the news on the war keeps moving at a fast and furious pace. Monday morning, futures were down 100 basis points. But then, President Trump announced that he was postponing the bombing of Iranian energy infrastructure for five days because the US and Iran are talking. Futures soared. At one point on Monday, the market was up over 200 basis points. However, the Iranians denied that there were any talks at all, and the market sold off some. It still closed up 1.15%, but well off its highs. Tuesday, after the close, President Trump announced that the US and Iran are negotiating and that the US had submitted a 15-point plan to end the war. Wednesday morning, Iran rejected this ceasefire proposal and called US talks, quote, illogical, unquote, and demanded control over the Straits of Hormuz. By Thursday, hopes for a peaceful resolution seemed to be fading. Now it's possible that President Trump has just been using delaying tactics to set up a time for the US to take over Karg Island, which is the key to Iran's economy. Until the war is over, the markets will continue to trade headlines. This coming Monday, we are posting an amazing interview with Stephen Cook, who is a scholar and expert on the Mideast at the Council on Foreign Relations, and has sources on the ground providing him with unique insights. And if you haven't seen my interview with Halima Croft, the head of Commodity Strategy and Mideast Research at Royal Bank of Canada, I'd suggest you watch that interview this weekend before watching the Stephen Cook interview on Monday. Another week, more bad news for private credit. On Monday, the news was at Apollo. Its flagship $25 billion private credit fund called Apollo Debt Solutions received a quarterly redemption notice of 11.2%, but only the 5% cap was honored. That was Monday. On Tuesday, Moody's downgraded the rating of the $13 billion private credit fund jointly run by Future, Standard and KKR. Moody's downgraded the fund to junk, and when the company reported fourth quarter results a few months ago, it showed that non-accrual loans had climbed to 5.5%, one of the highest in the industry. That caught the attention of the ratings agencies. Also on Tuesday, there was bad news from the ARIES $10.7 billion strategic credit fund. The fund received redemption notices at 11.6% of assets, but only honored the redemptions at the 5% cap.

In related news, on Wednesday, Barclays announced that it is scaling back its asset-based lending to small borrowers after facing losses from the collapses of market financial solutions and tricolor holdings. Barclays is shifting its focus to loans and securitizations for large corporates and has already pulled back on some deals and increased pricing to reflect higher risks. If you take one thing away from this wrap, focus on this. These patterns signal the beginning of a credit cycle. This is what it looks like. Bad news starts to mount and then lenders begin to tighten underwriting standards and to restrict credit to, at first, certain borrowers and more borrowers over time. And this process can lead to a recession. I am keeping this wrap short because we are now going to show an interview I did recently with the CEO of a home builder, Meritage Homes. This is a stock I recommended in January. My thesis was that Meritage is a well-run mid-size home builder that was then trading at tangible book value. The range of valuation for Meritage is 50 percent of tangible to one and a half times. Thus far, my recommendation has not played out. Why? The one thing you can't get away from with respect to home builders is interest rates.