Compass Prepares for 25% Downturn in Housing Market, Plans Serious Cost Cutting, Pukes All Over the Place

Because suddenly the SoftBank-backed company, which blew $1.73 billion since 2017, is running out of runway.

By Wolf Richter for WOLF STREET.

Compass, which calls itself the “#1 Brokerage in the US” and has for years hyped its technology, and has billed itself more as a tech company than a real estate broker, whacked folks over the head multiple times this evening:

  • With another huge loss, $101 million this time, bringing the total losses since 2017 to $1.73 billion – a real estate brokerage, for crying out loud!
  • With Q2 revenues that barely grew and missed guidance.
  • With shocking cuts in its Q3 revenue guidance, forecasting a 25% plunge in revenues, when analysts had expected revenue growth!
  • With a morsel from CEO Robert Reffkin during the earnings call: “The Fed took repeated actions, which have had the direct effect of driving down our revenue.”
  • With another morsel from Reffkin: “We’re preparing for the real estate market this year to be nearly 25% below where industry experts believe it would be just six months ago.”
  • And with a plan to cut costs, and by a lot – a company whose business model had been “growth at all costs.”

CEO Reffkin explained during the earnings call (transcript via Seeking Alpha): “There’s still buyer demand, and still prices are flat in good markets; they’re down to modestly down into the more challenged markets. But there’s no longer multi offers everywhere like we have before. Days on market are definitely increasing. And so overall, we’re still negative on outlook.”

KATHOOMPH made the shares in afterhours trading today, plunging between 12% and 20% to just over $4, having collapsed by 82% from the first trading day after the IPO in April, 2021. The shares have plunged so much that today’s afterhours debacle is barely visible (data via YCharts):

The cost-cutting thingy is funny because Compass was never designed to make a profit in the first place. It was designed to rake in cash from investors by promising them forever-growth and then blowing this cash to achieve this growth.

In its startup phase, it raised $1.5 billion, including from the geniuses over at SoftBank, and then it raised $450 million during its IPO in April 2021. Compass spent the past years going around the US blowing this money by overpaying for real estate brokerages and poaching brokers from other brokerages, promising them oodles of money and stock-based compensation to the moon, and by plowing large amounts of cash into developing its much hyped software platform, all based on the promise of forever growth – and forget profits.

But now this scenario has gotten shookalacked by the downturn in the housing market and the projected plunge in revenues.

In its prior earnings call on May 12, Compass already announced that it stopped all expansion into new markets and buying other brokerages. In early July, Compass announced it would lay off 10% of its workforce, about 450 employees.

So in today’s earnings release, it said that market conditions were “extremely challenging” in Q2.  And it announced a “new cost reduction program” that would cut about $320 million in operating expenses over the 12-month period compared to the 12-month period through June. And this cost-cutting would allow them to “generate positive free cash flow in 2023” in this environment of sharply dropping revenues, yeah, they’re going to be cash-flow positive during the 25% downturn after having burned huge piles of cash during the hottest real estate market ever, yup, I got it.

“Specifically, we plan to reduce our two biggest areas of expense: technology and incentives to acquire agents,” they said during the conference call.

“If the market gets worse, we will pursue the necessary steps to achieve that goal” – being free cash flow positive in 2023 – Chief Operating Officer Greg Hart said during the conference call.

Cutting costs when your business model is “growth at all costs” is always a peculiar thing. But now as the housing market has turned down and home sales have dropped, and it’s much harder to make a sale and get the commissions, cost cutting is doubly peculiar for a “growth at all costs” company. It is in essence admitting defeat of the business model that it had hyped to investors all along.

And that’s a desperate move because investors will be fleeing, making it that much harder to raise new money to burn.

Compass has a reason to make this desperate move. It may be running out of runway. It reported net cash used in operating activities of $120 million in the first half of 2022. It ended the quarter with $430 million in cash, down from $618 million six months ago. So at this rate of cash-burn, you can count on the fingers of your hands how many quarters the company has left before the cash will be all burned.

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  117 comments for “Compass Prepares for 25% Downturn in Housing Market, Plans Serious Cost Cutting, Pukes All Over the Place

  1. polistra says:

    The high priests of tech are just like the high priests 5000 years ago.

    When the sun is rising, MY MIGHTY AND WONDERFUL TECH MAGIC made it rise.

    When the sun is setting, BAD DEVIL FED made it set.

    Over and over and over, every day the same obvious fakery, and the VCs believe it every time.

    • dishonest says:

      VCs do not necessarily believe it themselves. They just need to get suckers further down the line to believe it.

      They believe in making a profit by any means that they can get away with.
      It’s just business.

      • SS says:

        It’s a classic pump the IPO and dump the stock.

        As the IPOs and Spacs of many cash burning unicorns were announced in Pandemic, Wolf correctly pointed out the dangers to investors.

        The smart money has insider info on when to get out. It’s mostly retailers and passive investment funds that get trapped.

        • Alonso says:

          Wonder how many RE agents will be leaving. That’s something I don’t think Rafkin or the accountants have included in their down grade of profit/negative earnings for their forecast. Will be interesting as I’m in RE (but in the mortgage side of the business). Yes. Compass did come after a few agents, I know, and wondering if they will come back to a stable RE company…

    • Augustus Frost says:

      Like the article said, this isn’t a “tech” company. That’s marketing BS to inflate the stock price.

      • Doug H. Seph says:

        I’m an agent at Compass albeit on the commercial side. The extent of their tech is the wifi connection I use when I come to the office. In all seriousness it some lame CRM with nothing you can’t get from Hubspot which coincidentally they supply to us for free to use.

  2. A says:

    Does he mean a 25% in transaction volume or a 25% decrease in housing prices?

    • Jon says:

      It has to be transaction volume.

    • Wolf Richter says:

      They didn’t specify. But this reflects their revenue projections, which are based on commissions, which are based on a percentage of the home price times the volume of homes sold.

    • Wylie Coyote says:

      Either way, would you believe him?

    • gametv says:

      Revenues to them is what he meant.

    • Doug H. Seph says:

      Transaction volume is already down 50% in SF Bay Area….prices will be down soon too IMO so the answer is probably BOTH!

      • yxd0018 says:

        Price has jumped about 30+% in last 3 years. Given almost all the buyers lock in low rates, with high inflation, I doubt it will get back to 2019 level even with downturn. With the high interest rate, real housing cost will still be a lot higher vs 2019.

  3. MF says:

    How does one cut ones way to higher revenues?

    When the business model is monopoly, there isn’t an exit called “de-growth”. Slashing costs is just a Sears-esque race to zero.

  4. Thunder says:

    { With a morsel from CEO Robert Reffkin during the earnings call: “The Fed took repeated actions, which have had the direct effect of driving down our revenue.”}
    The Federal Reserve has raised base rates to the heady heights of 2.25% ensuring that with inflation 8-9% pa your getting money for free.
    Robert your barking madly up the wrong tree.

  5. Eugene says:

    They will likely test the June 30 $3.32 low this week, which values the company at about $1.5B.

  6. SocalJimObjects says:

    The S&P will soar for sure!!! Bad news is good news again!!!

    • Old school says:

      Another good article out by Hussman. There are only 3 components to long term stock market price. Dividend yield, long term GDP growth and valuations. P/S is 2.8 X norm while dividends and real growth are low at sub 2%.

      Future s&p prices now are mostly a function of keeping P/S ratio high which is mostly determined by sentiment. Lowest P/S ever was 0.5.

      • cas127 says:

        The “price-to-whatever” (/earnings, /sales, /book value, /etc) ratios have been out of whack for many years, driven to madness by a lobotimized Fed holding interest rates near zero.

        When people get .5% on their bank CDs and 1% on their Treasuries, they go ignorantly hunting for yield, driving equity valuations far, far above what actual underlying business fundamentals can support.

        This is how the Fed/DC “saved” America for the last 20 years.

        • Jack says:

          The price doesn’t matter when the money itself is controlled by an unaccountable cabal. We need to get politicians out of our money.
          Note: all fiat is debt, not money.

      • The end game for RE (and stocks) is valuation. Not quantifiable, but binary. Does valuation matter? For must have property (or stock) the answer is no. WB must own stocks, he has no choice. Burry (the Big Short) sold his 140M stake, when he was worried about the market (he’s a piker). How you invest has everything to do with how much capital you have. Hussmans back data is based on different investor demographics. The first leg of this bear market was no volume. Nobody sold (they just bought insurance) Now derivatives are more expensive, thanks to Fed. At some point you must buy stocks just to protect your asset values. With any luck you drag in the retail crowd and then the exit doors are not quite so small. Keep your eye on the sparrow (BTC)

        • sc7 says:

          Burry has been wrong ever since 2008, so many of his predictions have been completely wrong. He also constantly deletes his tweets.

          The guy is a one-hit wonder.

        • sunny129 says:

          Ambrose Bierce

          “Does valuation matter? ”

          Did it matter during the last 13 yrs or even now?

          It is all about the power of perception and hopium for an early Fed’s pivot. Nothing else matter!
          Indexes keep marching up until inflation number in September.

      • ru82 says:

        Should he not count inflation?

        If I build 10 widgets a year at $10 a piece. My goal is to sale each Widget for a profit of 10%. Thus I sell each widget for $11.

        So my Profit is $110 (Sales) – $100 (Expenses) – $10 profit.

        I have 10 owners who each one 1 share in the company.

        Thus my EPS is $10 / 10 – $1.

        Lets say we have 10% inflation and I can pass the inflation to my customers.

        Now it cost $11 to build my widget. I sell the widget for $12.10.

        My industry is stagnant and I have no growth in the number of widgets I sell.

        But,

        My EPS is $121 (Sales) – $110 (expenses) = $11 (earnings) / 10 (Shares) = $1.10

        EPS last year was $1. EPS this year is $1.10. That is a 10% EPS growth for a business with no growth.

        So in theory, the value of my company just increased by 10% and the stock owners just saw a 10% appreciation in their stock. My point is a company with zero growth can see its stock price go up during inflation. That is why EPS and the stock market in the long run always goes up.

        • ru82 says:

          So my Profit is $110 (Sales) – $100 (Expenses) – $10 profit.

          Should be
          So my Profit is $110 (Sales) – $100 (Expenses) = $10 profit.
          Thus my EPS is $10 / 10 = $1.

  7. LeClerc says:

    If things get bad inside Compass, then many of the brokers they bought will leave to start their own brokerages.

    An unwind for the ages.

    • COWG says:

      Yeah,

      They might have to get off their ass and do some actual work…

      This easy peasy selling and buying of houses is over…

      Gonna be funny watching this bunch fight over the crumbs…

      I was thinking back and of the 16 properties I’ve bought and sold, I never used a real estate agency for any of them except the last one and only because I couldn’t negotiate with FreddieMac directly… I’ve worked out the deal with the other party and took it to a real estate lawyer for the contract at a flat rate…

      Never understood the sit on the couch and wait for technology to bring me a house…

      • Flea says:

        All you tally have to do is hire a title company

      • Leah says:

        I’m sure you didn’t knock on doors.. you looked online and the AI found you and the house you were seeking.. and who gathered & verified and entered the up to date photos and property data you sought? The licensed real estate agents.
        When you’re selling did you open the door to strangers off the street knocking on your door? No, the licensed real estate broker screened calls from a myriad of buyers, then negotiated highest & best offer then made sure it was all legally and correctly transferred via a vis the title company and attorney. Sure you can buy and sell without an agent all day… but where are you getting your data from? Technology. Easy Shmeezy is when you undersell or you overpay. Maybe you should join Compass as an agent if it’s so easy

  8. perpetual perp says:

    We have a debt centric financial system. Boom and Bust. Rinse and repeat.
    I smell rot.

    • phleep says:

      If this economy stalls, even with these mild interest rates, I think there are so many shoes to drop. Fed-resurrection is their only gamble left. But that can take too long, this time.

      Debt going into rising interest rates will push “fast forward” on this funhouse ride. Scandals will spread beyond Three Arrows Capital and such, if this goes much further. Desperation does interesting things. The strong and connected, though (mostly survivors from the early 2000s) can still draw credit.

  9. historicus says:

    Wolf..
    any comment on the QT……
    the progress, speed, or lack thereof?
    A quick glance shows little.

    • WolfGoat says:

      Still looks like they are sitting on 2.7T of MBS… it actually increased by 16M between Aug3rd & Aug 10th, No QT for MBS I can see.

    • Wolf Richter says:

      historicus and WolfGoat,

      A “quick glance” is for those who want to stay ignorant. I’m getting tired of these idiotic QT comments. You’re still not reading my articles on this. So I explain it for the umpteenth time:

      Treasuries roll off twice a month, mid-month and end-of-month. Yesterday was the mid-month roll-off which will show on Thursday’s balance sheet. The end of the month Treasury roll-off will show on the balance sheet in early Sept.

      Booking of MBS trades is delayed by 2-3 months because the Fed trades them in the To Be Announced (TBA) market and books those trades when they settle, which is 2-3 months later.

      These moron bloggers out there only cite the balance sheet in between the roll-offs and are willfully ignorant about MBS. It’s just toxic ignorant BS. Don’t troll my site with it. Wallow in this BS where it’s produced.

      And if you keep refusing to read my QT articles but keep trolling my site with this braindead willfully ignorant QT-denier BS here, you won’t be able to comment here. I’m tired of having to waste my time on this crap.

      READ THIS:

      https://wolfstreet.com/2022/08/04/feds-qt-total-assets-drop-by-91-billion-from-peak-qe-created-money-qt-destroys-money/

      • DawnsEarlyLight says:

        I actually have a past copy of this taped near my display, so I do not incur the ‘Wrath of Wolf’!

      • Actually I wonder if the demise of Compass will be any more impactful than the demise of Zillow?

      • ru82 says:

        Everyone wants QT to be fast. The FED is going to take it slow.

        Removing liquidity fast always causes big problems. Especially while you are also aggressively raising interest rates.

        • gametv says:

          The problem with your theory is that they executed QE very rapidly and are now way behind the eight ball in getting that stuff off their balance sheet.

          I actually believe that the Fed will barely even start into their QT before the economy suffers greatly and they will never get close to unloading the junk they piled onto the balance sheet.

          The real story here is going to be just how quickly our economy tanked and how all the debt owned by the Fed is now structural and cannot ever be liquidated without serious implications. Because all that money was wasted and spent on goods we bought from China, building the Chinese economy, not ours.

        • larry says:

          “aggressively raising rates” …. please!!

          Real interest rates have never been anywhere this negative …

  10. Stanley F Brossart says:

    It was the best of times when Trump and the Fed were giving out millions and more millions in QE while driving interest rates to zero. So now we wonder why inflation rages. If the game is lost, then we’re all the same
    No one left to place or take the blame. The radical, he rant and rage
    Singing someone got to turn the page
    And the rich man in his summer home
    Singing just leave well enough alone
    But his pants are down, his cover’s blown
    And the politicians throwing stones
    So the kids, they dance, they shake their bones
    ‘Cause it’s all too clear we’re on our own. GD

  11. SocalJimObjects says:

    ROFL. You really can’t make this up even if you wanted to. Marc Andreessen just gave WeWork’s (yes that WeWork) Adam Neumann $350 Million to solve the Housing Crisis.

    We live in a crazy world.

    • butters says:

      They are in the same club. Shouldn’t be a surprise to anyone.
      Probably another pump and dump scheme. VCs want their cut.

    • ru82 says:

      Details are scarce on this new residential company but I am guessing Neuman is going to go to all those building owners he leased for WeWork that at sitting empty and pitch the idea of WeWorkLive where people can work and live together. lol

      There is plenty of empty office space. But in my city to get a tax break you need to allocate 15% to affordable housing or the burger cooks at McDonalds.

  12. HollywoodDog says:

    Wait. I haven’t been paying attention: Is this Amazon for Homes?

  13. Ben says:

    Wonder what percentage of housing price and the growth of MBS debt from refi and HELOC is tied to USA GDP.
    China estimates their GDP is about 25 percent tied to real estate. So my guess is a much smaller percentage is USA GDP.
    We are a consumer driven economy on both goods and services.
    Ever increasing debt to fund gains to GDP I believe is the key. Full employment has sure helped the USA economy and the FED money creation over such a very short period of time may take years to unwind.

    • Tim says:

      Every home sale generates about $40 to $50k in retail sales for furniture, furnishings, etc., so reduced sales have a pretty big impact. Also, housing prices were already tapping out many consumers and increases in property taxes in many states will take a bite out of budgets. This Christmas could be really ugly…

  14. Agnes says:

    Have you ever considered a second career as a jazz musician? Hard work to get there, yes, I know. But can you imagine how expressive ‘kathoomph” would sound through a bari sax? Some of your words are perfect for it: “shoo-kal-ack kaaaaa-thoomph.” You’d steal the show.

  15. Anon1970 says:

    Does this mean that I won’t be getting any more issues of a free glossy real estate magazine with pictures of multi-million dollar homes for sale in the SF Bay area?

    • COWG says:

      Ah yes…

      The ole Sears catalog for houses…

      I want this one… and I want that one… but if I had to, I’d take that one…

      Okay, turn the page….

    • Dr. Wayback says:

      Good reading on the “Throne”.

  16. BenW says:

    No wonder they’re losing money if they think a 25% downturn is heading our way. So, they didn’t get the memo that June’s YoY price increase was a “meager” 17.3%? There’s no telling if/when YoY will turn negative. Moreover, 30YFRM are likely to fall below 5% by sometime in Sept. At that point, the housing market is going to stabilize as people continue to rely more on ARMs. Without meaningful job losses in residential building, there will be no recession.

    • Slick Willy says:

      “Moreover, 30YFRM are likely to fall below 5% by sometime in Sept“

      You mean right when QT really kicks off and the demand for MBS drops, and the Fed proves to the market that it is serious and keeps hiking instead of “pivoting” and the 10 year moves up?

      Not so sure about that one.

      • Not Sure says:

        “the Fed proves to the market that it is serious”

        Folks who think that the Fed has suddenly changed its nature, riding in like a white knight to defend honor, truth, and decency seem to follow the psychology of abuse victims. “No, he won’t ever hit me again. He’s really a good man underneath, and he’s trying so hard to work on his QE addiction. He said he’ll go to rehab, and he promised me he’ll never touch that stuff again. I just know he’ll change if I stick with him!”

        Not only will Jay Powell and his gang beat us again… He’ll go laugh about it with his rich buddies afterward.

        • rojogrande says:

          You don’t think there’s anything different this time that will impact Fed policy going forward? The Fed didn’t suddenly change its nature, after all it’s taken almost a year to get here. The Fed may not even want to change. But the fact is the Fed has certainly changed and the screws will continue to be tightened until inflation is under control. Further destruction of the dollar as a store of value may not even appeal to some of Powell’s rich buddies.

        • Slick Willy says:

          Don’t get me wrong, I think they’ve screwed up this situation royally, and they would love to keep the “put” in… but if they turn tail in September they will lose what tiny shards of credibility they have left. Will they cave too soon eventually, sure, but not in September. My overall point is that mortgage rates are still going higher this year.

          Look at the grinding an gnashing of teeth going on in Canada after 50 bps.. and they are plowing ahead it seems.

      • BenW says:

        Slick,

        The MBS QT is only rolling off pass through principal payments and any mortgage that gets paid off early from say a refi or home sale. It’s not directly affecting MBS demand. Now, if the Fed actually started to sell off MBS, then that would force rates up and certainly give residential housing a reason to kick off a recession. But, that’s not going to happen.

        Next, the Fed will raise the FFR by 50 & 25 basis points, respectively, in Sept & Oct, then they’ll begin at least a two month pause in Nov & Dec. By then, the economy will have slowed enough to justify the pause which could last through April. The FFR will end the year at 3.25%. FYI, the Fed can’t let the FFR move up above 3.5% and stay there. By the time it hits 3% next month, the FFR will start to give 1 year & below treasury bills a run for their money in terms of yields on safe assets.

        Once the 30YFRM drops below 5%, again, housing WILL stabilize. By next spring, any move towards YoY price declines will abate and turn into price gains again, al beit not above 10% for most of the year.

        Sometime between now and next spring the Fed will have to decide if they’re going to put on their big boy pants and actually start to sell MBS. The Fed is in a very tough position. They can’t let housing tank but they can’t let these double digit price increases go on forever.

        • Brian Jarrard says:

          They tried…it went NO BID. Why buy 25-30 year paper backed by a collective 2.5-3.5% rate when that underlying collateral has an 85% chance of losing 30-50% in value (the homes packaged to make the MLS sausage)? If you had 50 Billion to invest…just buy the 1 year T-Bill paying 2-3% with no risk. The Fed has the printing press and can guarantee payment. There is NO secondary market for these MBS (packaged horse shite). There is NO Plan B.

          GAME OVER

    • Augustus Frost says:

      If the 39 year bond bull market ended in 2020 as it appears, rates are destined to “blow out” years from now, no matter what happens by September (a correction in a long-term bear market). Yes, eventually higher than the 1981 peak of 14% on the long bond. The current fundamentals actually “suck”.

      • cd says:

        that is a long ways off if so…..and the US wouldn’t have reserve currency at that time…

        If Britain is still have a life and enjoying its standing, the US has another 100 years of hegemony left

      • Here it comes says:

        Augustus is correct, the way this interest rate cycle ends is with rates spiking well beyond what most people have seen in their lifetimes.

        There will likely be a bear market rally that could last a year or two (which could see stocks hitting new all time highs) that may have already started, but the culmination of this interest rate cycle is a swift and scary “crash” move that will see rates spike to levels that will make today’s numbers a fond memory.

  17. rick m says:

    A real estate brokerage that bills itself as a tech company. Most real estate advertising in printed free grocery store circulars have pictures of the sales agents that’s as big or bigger than the pictures of the houses. And their pictures are always on the billboards, those sign guys are keeping busy just changing the faces as brokerage turnover has apparently increased a lot. Tech has reduced the legwork and costs of doing business. Their cost reduction program is going to fix their problems by disincentivizing new agent hires, effectively increasing the work load for the existing sales staff, and reducing the money that they spend on their tech applications, which is their purported raison d’etre. Success is assured. They sound like they’re at minimum decision height and can’t see the runway, but their instruments say it’s there, and made of Jello, to borrow your aviation metaphor.

  18. nsa says:

    “…circulars with pictures of the sales agents’
    The 30 and 40 something female agents use their hot high school yearbook pics.

  19. CreditGB says:

    This plane isn’t going to clear the concrete wall at the end of the runway much less the tree line beyond.

    “Specifically, we plan to reduce our two biggest areas of expense: technology and incentives to acquire agents,” they said during the conference call.”

    It would seem like any incentivized “agent” reading this, would go to either of two competitors whose agent percentages are better. A year ago, I read where the agent percentage would have to be cut by 3% to move them toward profitability. Seems like they’d kill their golden goose by this path. As far as offering a stock incentive to agents in lieu of percentage, good luck with that one.

  20. Sammy says:

    I would ask “How Do These People Sleep At Night???” but I know that

    A) They sleep during the day

    B) In a coffin

    C) resting on a hill of dirt and ashes from their native village in Transylvania

    Boo frickety hoo that these lying parasites are watching their stock crash and burn

    • Lili Von Schtupp says:

      As my inane posting indicates, I am by no means business savvy, but even I can see from way down here in the mud this was never intended to be a long-lasting enterprise of distinguished repore and solid financial foundation/future. No pity to whoever invested in it, but sucks for us all when tax payers are ultimately left with the ruins of this housing bubble.

      As one of the many getting trampled on during overbooked showings of potential buyers jumping on a 2BR poorly/dangerously flipped crap shack (they had spray painted the vines growing through the chimney black), it was pretty clear nothing about any of it was sustainable. When two suits from the investment firm doing the flipping happened to show up during my time, chuckling at the spectacle, I know it was all a joke. Articles like this affirm a sentiment smarter (yet still desperate) shoppers already had.

  21. CreditGB says:

    “We sell at a big loss, but make a profit on our high sales volume.” Remember, there is always a greater fool…… until there isn’t.

    Forward Annual Dividend Rate N/A
    Forward Annual Dividend Yield N/A
    Trailing Annual Dividend Rate 0.00
    Trailing Annual Dividend Yield 0.00%
    5 Year Average Dividend Yield N/A
    Payout Ratio 0.00%
    Dividend Date N/A
    Ex-Dividend Date N/A

    • 91B20 1stCav (AUS) says:

      Credit-as you note, Milo Minderbinder’s ghost walks among us… (have you noticed the price of eggs, lately?).

      may we all find a better day.

  22. Matthew F Scott says:

    I would love to see some honest, in depth looks, at the people in this world of startups. What obscene levels of extravagance they indulge in, the wealth consumed to produce what? Nothing but “hype and hoopla”, as Wolf would say. Meanwhile the destitute, drug addicted and mentally insane wonder the streets and the working masses have to work harder longer just to keep afloat.

  23. rick m says:

    When I was a kid before houses stored excess wealth as well as socks, gangs of sweatless blue haired ladies prowled North Dallas in Sedan de Villes and Imperials planting Ebby Halliday Realty signs everywhere. It seemed like an easy living that was designed to give them something to do during the day besides lunch at Lubys. I realized later what a feast or famine business it is. Actually it’s like drilling for oil, one good one brought in pays for the dry holes, you hope. Takes a certain kind of indefatigable people to get oil to refinery and houses to closing. For every easy sale with sweet percentage for the agents there’s lots of time and money wasted on listings that don’t sell.
    Extending the business model to corporate size doesn’t fix anything for the individual agents, the variables that prevent closings do not just disappear. It sells a lot of advertising, but buyers have better resources than ads now.

  24. drifterprof says:

    Someone’s loss is someone else’s gain.

    So if Compass lost $1.73 billion in the last five years, who were the folks gained that much?

    • Misenome says:

      You know how these growth at any cost companies work. They blow it on bonuses, incentives, parties, conventions, overpriced acquisitions, extravagant office buildings, marketing and a great time is had by all until they actually need to turn a profit.

      • Flea says:

        Are you talking about major drug companies,there so corrupt it’s not funny. Kiss doctors asses to make a sale also my daughter who is a nurse is going to one of top steak houses in Omaha (flemings) for a presentation. To sell a new drug while consumers take it up the shaft

    • Wolf Richter says:

      drifterprof,

      Its brokers, its software engineers, its executives, the owners of the brokerages it bought, its suppliers, landlords that lease these fancy offices to Compass, etc.

      Plus the helpful list Misenome provided.

      • Gattopardo says:

        Tech? What tech? What s/w could they possibly have developed that is in any way useful? THEY SELL REAL ESTATE. That’s it. They don’t make real estate, they don’t trade it, they don’t facilitate some kind of arbitrage or anything that could involve needing the interpretation and application of data. THEY JUST SELL IT. They don’t even get to determine the asking price — actual owners of the RE may listen to their advice, but Compass has no say. Are they somehow digesting and forecasting comps in a way that’s really useful to buyers and sellers. I highly doubt that.

        I remember when Berkshire bought up some RE brokerage and the tool of an agent I know who worked for the acquired sent out an email announcing “a new era in Real Estate!” I asked how it would be a new era, how it would be different. And when I drilled him enough, he said “ok, yeah, it’s the same, just a new name.”

        That’s all Compass is.

        I pity the fool who bought into it in any way others than short!

  25. ru82 says:

    Wharton’s Jeremy Seagal says the bottom is in and soft landing is on schedule.

    78% of earnings surprised to the upside after 92% of companies have reported.

    Costco, after dropping 25% earlier this year is 10% from its ATH.

    Some retail companies have recovered from the June bottom and are now hitting all time highs. Autozone and O Reilly for example. Crazy

    • butters says:

      “soft landing is on schedule. ”

      Did he say when does it arrive? I might go pick him up.

      • ru82 says:

        ROTFL

      • ru82 says:

        We are almost getting into some overbought settings. Tesla is up 50% in just 2 months. Wow.

        Look at BBBY. 5 to 25 in a couple of week. The Wallstreetbets crowd is going after the highly shorted.

        FUBO looks like it is probably next

        • butters says:

          Don’t know what’s going on. No reason to waste your brain cells over this.

          It will end in tears sooner or later…hopefully sooner.

        • ru82 says:

          BBBY is on life support. Their stores look bare compared to the good old days.

          FUBO – It may run for a bit more. Market cap is lower than sales. Q/Q sales growth of 69%. But, split adjusted from the stock peak in 2015, the stock is down from the peak of $1,400,000 in 2015 to $6 today. ouch

          FUBO is just a short squeeze right now as they do not make any money.

    • Wolf Richter says:

      “…and soft landing is on schedule”

      There is no landing at all. That thing is still flying high.

      • 91B20 1stCav (AUS) says:

        …and likely that Mr. Seagal has his ‘chute on, anyway, as he closely observes the altimeter…

        may we all find a better day.

      • curiouscat says:

        I wonder if Jay Powell has any sense of how he will be perceived in history, or indeed if he is even concerned. In recent history only Volker comes out as someone who seems to have had the best interests of the US in mind. The rest, not so much. I wonder if this matters to Powell. Knowing something about his level of introspection might tell us more about how this will all play out. Volker or Greenspan.

    • Einhal says:

      These guys are utter morons. The “landing” is getting the overheated/inflationary economy down. Right now, inflation is still roaring out of control. There’s been no landing whatsoever.

      Also, anyone who cites earnings “beats” is either a dishonest Wall Street shill or stupid. The estimate game (whereby analysts set the estimates low so that companies can “beat” them) is so stupid by this point I can’t believe anyone pays attention to it.

    • Flea says:

      Costco is packed full,Walmart almost a ghost town

      • Wolf Richter says:

        I don’t go to Walmart. But I go to Costco, and I agree. It’s mayhem in there.

      • NJGeezer says:

        Good observation, Flea. I believe this is purely a result of rampant inflation and it’s disparate impact on the UMC vs. the working class.
        –Geezer

    • Will V says:

      How many hit true “income” vs “revenue” targets. I bet I can create “billions” in revenue if you just loan me “billions” so I can sell my products at a loss. Besides oil companies who actually made real income. Read the actual reports, garbage growth, plus revenue “growth” based on inflation (devaluation of the dollar) used to purchase the product. Wolf’s favorite Carvana. Revenue increased 16% but they LOST $439 MILLION in the quarter from a profit of $45. I know growth yup they will make it up on volume. /s

    • cd says:

      yep and all the bears are toast, so burnt that you cannot even scrape it to enjoy a bit of it….

      anyone not in the /NG and oil sector is losing tons of yield that will keep going up for next 3-5 years

      I love my SJT shelling out 17%. Hogs get slaughterd but pigs eat well

  26. Michael Engel says:

    Compass radioactive 2%-3% commission split 25% broker/ 75% agents.

  27. unamused says:

    polistra: “The high priests of tech are just like the high priests 5000 years ago.”

    There are definite similarities in how religion and capitalism operate.

    I’ve recently found my copy of “Capitalism as Religion” by Walter Benjamin:

    “In sum, one may consider capitalism as a religion in the sense that it is a system of beliefs and rites in which economics plays a theological role. It is a hegemonic system that combines norms, values, divinities and laws.”

    Both systematically exploit weaknesses in human cognitive processes which lend themselves to self-deception, personal delusion, and wishful thinking. A common observation is how religious enthusiasts involve themselves in casinos, financial markets, and religious practices in the same ways, with the expectation that imagined supernatural operations will help them win the jackpot.

    It takes a particularly defective business model to lose this kind of money in an up market. Truth may set you free, but first it’s going to make you miserable.

    • Augustus Frost says:

      I’m guessing Benjamin didn’t have Materialists in mind when he wrote that quote. They are even more deluded than the ones they claim are deluded, believing in nothing.

    • Sam Lowry says:

      unamused: “There are definite similarities in how religion and capitalism operate.”

      “Capitalism” by its original definition, used to be nothing more than a branch of praxeology: the branch of knowledge that deals with practical activity and human conduct; the science of efficient action. Plant corn instead of making beer out of it, the corn is functioning as capital.

      The problem is that there have been a whole bunch of activities conducted by the oligarchy that have been fallaciously construed as ‘capitalism.’ The most notable is central-bank fiat-currency money printing. It is theft from those forced to use the government-issued magic tokens as money, to those who enjoy the exclusive privilege of creating those magic tokens out of nothing. That is, it is theft from poor to rich.

      Yes, the oligarchy have hired many intellectuals to spew apologia for such actions claiming that what they do is for our own good, for example, describing it as ‘capitalism.’ And yes, it can smell like religion. But don’t be fooled.

    • Not Sure says:

      Unamused, that’s too broad a definition of religion. If that’s the standard, then pretty much any political, economic, or social system could be called a religion.

      Since so much of what we call “science” is really just data analysis (studies) rather than confirmation of facts through actual experimentation, it should probably be called a religion by Benjamin’s standards. It certainly has belief structures. There are highly organized and well-defined rites that must be completed to climb the career ladder in academia or to get research funding. It has groups of thought that are highly hegemonic in nature. Norms, values, laws, yes to all of these as well.

      Though I do have to agree with you that psychological techniques used in religion certainly can be re-purposed to part fools with their money. Sure, it takes an especially bad business model to lose so much money in a market of record strength, unless profit was never the goal. If the business model was to con investors legally, then take the money and run, these types of companies have fulfilled their purpose nicely.

    • c_heale says:

      It’s more like a cult, like Scientology.

  28. Nate says:

    When they say we’re not a **** company, we’re a tech company, what they mean is that since we’re on the internet, we don’t have to make a profit because someday we’ll be Amazon/Google/Netflix.

    Forget survivor’s bias. It’s tech, so it’s fine! You have to spend money to make money!

    Then, the fall.

    • chicken says:

      Same reason WeWork and Tesla are “tech companies”: the margins for tech can be gigantic, while the margins for cars and real estate much less so.

  29. cd says:

    Another winning day in the market, while doom is great for movies, not so good for investing. Been knocking out of the park as the most hated bull move in history will keep going….

    almost all the perma bears are toast…..they have been taught a lesson that one should have picked up by at least 2011….stocks go back up and trying to time the down move is next to impossible….but they sucker you in with fear….sells like fish down by the sea

    • historicus says:

      I said this two weeks ago, that August offered nothing for the Bears… no Fed meeting and declining increases in the inflation reports. September is typically a very bad month for stocks and the shorts have been cleared out.
      Waiting for QT and any effects it may bring, especially in the long end which the Fed seems bent on defending with unrealistically low rates…or did Powell freeze and pivot?

    • Einhal says:

      This is a trader’s market, not an investor’s. Unless you’re taking profits (which I expect, like most bloviating posters on the internet), you’ll lose and ride this down.

      The fact is, the market is drastically overvalued UNLESS the Fed pivots, and all institutional investors know it. They, along with the quantitative hedge funds, short term traders, and so on think they’ll get out in time, near the top. Most people, of course, won’t.

      • cd says:

        No, I see 5 years of great yield from MLP, commodity royalty area, some huge changes on NG obviously. Those changes are like carrier at sea, it will take a while to turn it.

        I’m definitely taking some profit on biotech as it led the whole move down and 62% sell off led to some easy pickens…

        I see the ultimate pain for bears as the double top, then a real correction….

  30. Michael Engel says:

    1) AMZN finally closed Apr 28/29 gap. NDX finally closed May 4/5
    gap. Today high is a trigger.
    2) WMT & HD popped up, but failed to close the gap. They might/ might
    not. Who knows.
    3) SPX entered July 7/8 2021 backbone, retracing 62% of the move from
    Mar 29 high. NQ did the same.
    4) IWM was the first to complete DM #9 monthly. It’s popping up,
    losing thrust. Vol accumulation suck !

  31. Brian Jarrard says:

    Home values in Dallas, TX are dropping 50-100K in the most recent 30 days. This will show up in the Govt reported numbers SOON.

    Good Luck

    1929 in the home market is here. It is not a demand issue…it’s a CREDIT/FUNDING issue…..like it ALWAYS has been.

    Homes don’t go up or down on demand…they move based on available CREDIT/FINANCING.

    The FEDs cannot sell MBS and there is NO OTHER buyer in the market. Mortgage Funding has hit a WALL and there is NO announced funding mechanism announced to replace the FED buying all of Fannie/Freddie packaged CRAP.

    Good F–king Luck having anything other than a CRASH landing when you have NO PLAN B.

    • BenW says:

      @Brian Jarrad

      “They tried…it went NO BID.”

      Please show me the report from the Fed where they tried to sell MBS. That’s BS! They haven’t. The runoff guidance said nothing about having attempted to sell MBS. All they’ve said, to-date, is that they may sell MBS at some point down the road. If they do, we both agree they’ll have to price it low with a much higher yield than 3%. I totally agree with most of everything else you’ve said with the exception that we’re not at the precipice of a housing meltdown.

    • Wolf Richter says:

      Brian Jarrard,

      “The FEDs cannot sell MBS and there is NO OTHER buyer in the market.”

      Not sure about the first part of your statement.

      But sure about the second part: MBS are a HUGE market, and the Fed is already almost out of it. Right now its purchases (to replace passthrough principal payments) are down of $3 billion every two weeks. They will go to $0 in September. And there are a gazillion buyers out there that are buying them because this a huge and actively traded market with lots of buying and selling.

  32. kram says:

    They seem to have lost their bearings! :)

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