Landmark Blockchain CryptoLinks January 16th – Cashing In


Lead Story…. A bit short on time writing this between the long weekend and the fact that it was my birthday on Sunday so I wanted to focus on something a little outside the box – the most brilliant strategy in corporate America today, possiblye in history.  So what is it?  Take any moribund company or fly-by-night penny stock  that trades publicly and simply add in a crypto currency side business or, if you can’t come up with an idea that fits there just add some variation of “blockchain” or “crypto” to the company’s name.  Then issue a press release, sit back and watch the valuation soar in increments of 100% while momentum chasers and johnny-come-lately trend followers pile in.  Keep in mind that this requires no actual experience in crypto-assets, no balance sheet and no substantive plans to implement anything.  Sounds great, right?  Thus far, it’s been tried by a hamburger chain, an iced tea maker, and numerous fly-by-night Chinese and Russian companies that don’t appear to actually do anything and I’m sure are just as sketchy as they sound – and the results have been stellar to say the least.  However, today I want to focus on the largest and most well known company to jump head first into the space – Kodak.

For those of you reading this who are under the age of 30, Eastman Kodak (also known simply as Kodak) is an American technology company that produces imaging products mostly based on photography.  It was founded in the late 1800s and was once one of the world’s leading companies but plunged in value due to management completely missing the rise of digital photography.  Kodak bottomed out when it filed for Chapter 11 bankruptcy protection in 2012 and has been a shell of itself ever since.  Quick side note: when I told Mrs. Links about this story her response was “they are still in business?” and I can assure you she is not alone.  Kodak’s stock peaked at around $37 per share after it emerged from bankruptcy and had been in decline ever since, flat-lining around $3 per share for much of the past year.  Then Kodak showed up at CES in Las Vegas last week with a plan to turn things around by going full bore into cryptocurrency with a two pronged approach.

First, Kodak announced an Initial Coin Offering:

Today Kodak and WENN Digital, in a licensing partnership, announced the launch of the KODAKOne image rights management platform and KODAKCoin, a photo-centric cryptocurrency to empower photographers and agencies to take greater control in image rights management.


Utilizing blockchain technology, the KODAKOne platform will create an encrypted, digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform. 

Next, they released a branded Bitcoin mining machine to rent to aspiring Bitcoin prospectors:

Kodak, the once iconic camera company, is licensing its brand to Spotlite, which builds computers designed to mine bitcoin, for a new line of bitcoin-mining machines that they plan to rent to the public for thousands of dollars. Although just how associated Kodak wants to be with the device is an open question.


On the flyer, the companies said they’d ask prospective customers to sign a two-year deal and pay $3,400 up front to rent the mining machines, which are used to support the bitcoin network and create new coins. As part of the agreement, Spotlite would gets to keep half of all proceeds the machines generate by mining bitcoin.

Of course, the stock almost instantly surged to $9 per share because why wouldn’t an about face to a combination of an ICO and a Bitcoin sharecropping scheme result in the complete resurrection of a dying 135+ year old photography company?  I suppose that the positive here is that Kodak does still have some legitimate business lines unlike some of the other highly questionable companies that have tried this, meaning that buyers of the stock still have some legitimate business to hang their hats on if (when) this all goes south.  Still, it’s more than a bit odd that the best way to earn out-sized returns in the stock market today is press release roulette – predict which dying company will co-opt cryptocurrency next, buy their stock and then sit back and wait for the press release that will send shares soaring.  Or, if you don’t have anything better to do, watch all day for news to hit the wire about the latest crypto scheme and jump in with both feet.

Now, I’m not one to just sit back and watch though so I’ve decided to re-brand this blog as Landmark Blockchain CryptoLinks effective immediately.  The blog was worth absolutely nothing yesterday (it actually has a negative value if you count the premium subscription to WordPress and the hourly value of the time it takes me to write all with absolutely no revenue stream to speak of).  However, armed with a new name and our pending ICO where you will be able to purchase virtual Landmark tokens that can be used in exchange for absolutely nothing whatsoever, I’m fairly confident that I can raise several hundred million dollars in no time at all and finally be able to purchase the tropical island that I’ve had my eyes on.  What a time to be alive.


Catalyst: How the shale bust of 2014 helped lead to the economic boom of 2017.

Lack of Ammo: Federal Reserve officials are increasingly concerned about their lack of ability to cut rates by a meaningful amount when the next recession comes which could potentially lead to a scrapping of the current 2% inflation target.

Hard Time, No Problem: In a scenario that was unimaginable just a few short years ago, the labor pool has gotten so tight that prison time is becoming less of a hiring hurdle.


The Coming Wave: A quarter of the US population will be in the elder years within the coming decade, which, coupled with pressure to cut costs and new technologies, is resulting in boosted demand for medical office properties.


Mixed Bag: Owning is still more affordable than renting in 54% of major US markets.  However, renting is more affordable than buying in 76% of counties that have a population of 1 million or more.

In the Money: US home equity is now at a record level and home owners are tapping into it to pay off other more expensive debt as well as for renovations.  However, they are also pulling out cash to invest in the stock market, other real estate or riskier investment like cryptocurrencies – which is concerning.

Supply and Demand: Don’t tell the NIMBYs but Seattle rental pricing is dropping substantially as a wave of new units come to market. See Also: Denver’s Lower Income Voucher Equity Program will help lower-income tenants pay the difference between what they can afford and the market rent as more luxury units come online.


Please Make it Stop: How robo-callers outwitted the government and completely wrecked the useless Do Not Call List.  Also, if any of you happen to know Mike Jones from Laguna Beach mentioned in the first paragraph of this article, please punch him in the face for me.

Subsidized: The secret lives of students who take advantage of “free” electricity and internet access in their dorm rooms to mine Bitcoin.

Off a Cliff: Wall Street banks have lost $27 billion in trading revenue over the past five years.  In the meantime, crypto brokerages are charging 3% fees.  I bet you can’t guess what is going to happen next.

Chart of the Day

The Federal Reserve cuts rates an average of 500 basis points in a recession but has nowhere near that type of capacity at the current time.

Source: Larry Summers


In Soviet Russia: In possibly the most Russian story in history, a drunk man used a stolen tank to break into a liquor store to steal some booze – which was shockingly not vodka.

Gotta Hear Both Sides: A woman in Arizona fired shots at her husband because he wouldn’t listen to her while he was on the can.

PLEASE MAKE IT STOP: Men’s skirts are becoming a thing in the fashion world and I don’t think that I want to live anymore.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Blockchain CryptoLinks January 16th – Cashing In

Landmark Links January 12th – Slight Improvement

formerly obese

Lead Story….  The tax reform law has officially passed and the dust is finally starting to clear so I thought that it would be a good time to revisit and see how housing actually fared after the final bill became a law (provisions dealing with commercial property were largely positive – save for capital gains treatment requirements going from a 12 – 36 month hold – and largely unchanged from the initial proposals).  Back on November 14th of last year in a post titled Disincentives, I laid out three concerns with the bill that would negatively impact housing affordability in high cost markets. Those concerns were:

 1. Property tax deductions will be capped at $10,000.

Final Outcome: The cap remains at $10,000 but has been expanded to include a combination of state taxes, sale taxes and property taxes so that renters can participate in the deduction as well.  This clearly will not help affordability in expensive markets and really hasn’t changed materially for home owners in high cost areas since it was initially proposed.  However, the jury is still out on how the provision will ultimately be implemented since politicians in high-tax states like California and NY are pulling out all of the stops out to try to find ways for taxpayers to circumvent the cap.  Everything from lawsuits to reclassification of state income tax to charitable contributions and converting state income taxes into a payroll tax is currently on the table.  I can’t imagine that the federal government would take that sitting down since it would blow a major hole in their revenue projections but only time will tell.

2. The $500k capital gains exemption currently available to those who sell a house that they have lived in for 2 of the last 5 years will now only be available to those who have lived in their house for 5 of the last 8 years

Final Outcome: The $500k capital gains exemption was preserved for those who sell a house that they have lived in for 2 of the last 5 years.  This is perhaps the largest change in the law from proposal to passage – at least when it comes to housing.  As written above, this provision would have thrown a large amount of gasoline on the raging affordability fire since it would have decreased the number of homes on the market by incentivizng home owners to move less.  I believe that this would have eventually led to less supply and higher home prices, exacerbating an already bad problem.  The National Association of Realtors (NAR) did not like this tax reform proposal from the beginning since it would likely mean less transactions – though they claimed it was because home prices would fall nationwide if the tax bill passed which was and still is bullshit – so they sicced their formidable army of lobbyists on Washington and were able to win a victory here.  As a result the “5 of the last 8” provision was stripped from the final bill in favor of the current “2 of the last 5,” meaning that this is one provision in the bill that will not result in a greater housing shortage that what we already have.

3. The mortgage interest deduction will be lowered from interest deductability on a home loan of up to $1 million to interest deductability on a home loan of up to $500k

Final Outcome: The mortgage interest deduction was decreased to $750k for new purchases, so right in between the initial proposal and the previous $1MM.  Anyone with an existing loan is grandfathered in at the $1MM until they buy a new home or refinance.  In addition, the ability to write off HELOC interest on balances of up to $100k was wiped out completely and not grandfathered.  This will hit inventory some at the margins in high price markets since moving now entails losing part of the deduction if the home owner would be taking out a mortgage greater than $750k on his or her new purchase.  The probable outcome is that home owners are likely to stay put a bit longer than they may have otherwise.

Despite some improvements in the final bill, I’m still not thrilled with the provisions that will impact housing.  Nothing in it incentivizes construction of new units and there are provisions as outlined above that will likely keep units off of the market – don’t even get me started on the potential negative impact to subsidized affordable housing.  There is an affordability crisis raging in much of the coastal United States.  Despite some improvements, the new tax law not only does nothing to address it but will likely make it worse.


Leveraged: Consumer debt (all household debts excluding mortgages and home equity loans) has hit an all time high of 26% of disposable income.  In fact, it has grown at about twice the pace of household income over the past five years.  On the surface this sounds like bad news for the economy but might not be depending on the details.

Don’t Call It a Comeback? Investors are preparing for inflation as bond yields and commodities surge.  See Also: Jeff Gundlach sees commodities outperforming in late-cycle boom.  Contra: Why Gundlach may be right about a bond bear market but his timing is another matter.

Nearing the Peak: The prime working age population (25 to 54 years old) in the US is nearing it’s all-time high.


New Life: Last-mile industrial is providing a second wind to otherwise-obsolete industrial buildings and sending rents soaring in the process.

Mixed Bag: Office vacancies ticked up slightly nationally thanks to new supply but are still dropping in many local markets.


Too Good to Be True: San Francisco’s state senator, Scott Wiener has stayed true to his word and made housing his signature issue since getting elected.  Wiener’s new bill to allow essentially unrestricted housing near transit is almost too good of an idea to pass in California’s often-absurd political climate.

Priced Out: The number of $1MM homes in the US has quadrupled since 2002.  In fact, a new report from Trulia argues that $5MM is now the new bar for a home to be considered “luxury.”


Getting Out of Hand: 130-year-old Eastman Kodak joined the cryptocurrency craze with a currency called ‘KodakCoin.’  Shares subsequently surged 30%.  See Also: Cryptocurrencies are the ultimate lesson in the difference between intrinsic value and market value.

Harder Than It Looks: Bitcoin prices are 43% higher in South Korea than they are in the US which would typically man a massive arbitrage opportunity for traders.  However, Korea’s foreign-exchange and anti-money laundering rules make it incredibly difficult to execute.

Lonely at the Top: Thanks to the surging Amazon stock price, Jeff Bezos is now the richest person of all time.

Chart of the Day

This entire chart feature on Consumer Credit from The Daily Shot is simply too good not to share:

1. Let’s begin with the consumer credit report which showed that Americans are embracing debt once again. Consumer credit balances saw the greatest monthly increase in 16 years.

• Total consumer debt outstanding hit 26% of household disposable income for the first time.

• On average, US consumers are living beyond their means, as spending exceeds income. The wealth effect (houses, stocks) is offsetting this trend for some households, but not for all.

Source: Piper Jaffray

• A sizeable portion of this increase in consumer debt has been funded by credit unions, which made a big push into the sector after the recession.

• Student debt, which is funded by the government, is approaching $1.5 trillion.

It is by far the largest financial asset held on the federal government’s balance sheet.

Source: @LoganMohtashami


Sigh: A police team in North Wales, UK decided to take a photo of their breakfast which included sausage, bacon and eggs and post it on Twitter.  As so often happens, an unhinged vegan went off about how offended she was.  Reminder: A vegetarian is someone who eats a plant based diet.  A vegan is someone who tells you that you should eat a plant based diet.  (h/t Winn Galloway)

Frivolous: There is a class action lawsuit against the makers of Junior Mints claiming that the boxes that they are sold in contain too much air and not enough candy.  Welcome to 2018.

Gene Pool Chlorination: Teens are putting laundry detergent pods in their mouths and posting videos online because, Millennials.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links January 12th – Slight Improvement

Landmark Links January 9th – Unrealistic Expectations


Lead Story…. A few months ago, I was having lunch with a friend who works for an allocator that has a large private equity fund as an LP.  His business is to deploy and manage capital for the LP (the private equity fund) in the residential development space. The conversation primarily focused on how difficult it was to keep LPs interested in the space since returns were not meeting expectations portfolio-wide.  This is a common problem that I’ve heard from investors in the residential development and construction segment of the market in recent years – the are under-performing almost across the board – even while investors with a commercial value-add focus rack up returns that often exceed underwriting. Yes, values have gone up substantially but cost increases and timing delays have been even more substantial. That being said, this genuinely seems like an issue of unrealistic expectations to me.  After all, the “subpar” returns that my friend and others referred to were in the mid-to-high teens from an IRR perspective, which sounds really good until you realize that the projects were initially underwritten to perform somewhere in the  mid 20s.

Interest rates have been in long term decline for decades, meaning that both the cost of debt financing and returns on “risk free” assets have also been falling.  It would stand to reason then that projected returns for opportunistic real estate plays like development and construction would fall as well.  However, that has typically not been the case as the mid-20s IRR target has remained largely unchanged over the years as rates have plunged.  Today I want to take a closer look as to why this is.

To make sense of this puzzle, you have to look away from fundamental analysis – which largely dictates that the premium for an opportunistic investment like development should be a spread over the risk free rate of return – and take a closer look at the market forces emanating from large investors that force LPs such as private equity funds to target largely unrealistic returns.  Generally speaking the largest investors with some of the most clout in this space are pension funds, and pension funds are facing a massive problem that they are incredibly ill-positioned to deal with in today’s low return environment – funding shortfalls.  Pension funds have to match liabilities in order to ensure that they have adequate capital to pay out to their current and future beneficiaries.  In order to do this, they have to make assumptions about future returns and this is where the problems really start.  Heather Gillers of the Wall Street Journal wrote about the challenge of generating adequate returns in a low yield world in the Wall Street Journal last week (emphasis mine):

In the public pension world, the willingness to chase expensive assets is the product of the core challenge most funds face—how to fulfill their mounting obligations to workers and retirees.

Decades of low government contributions, overly optimistic assumptions, overpromises on benefits and two recessions have left them with deep funding holes at a time when retirees are accelerating cash outflows. Estimates of their current combined funding shortfall vary from $1.6 trillion to $4 trillion.

The goal of most pension funds is to pay for future benefits by earning 7% to 8% a year. After the 2008 financial crisis, many funds tried to hit those marks by lowering their holdings of bonds as interest rates dropped, and by turning to real estate, commodities, hedge funds and private-equity holdings.

These so-called alternative investments rose to 26% of holdings at about 150 of the biggest U.S. funds in 2016, according to the Public Plans database, compared with 7% more than a decade earlier.

If you think that the idea of generating 7% – 8% annual returns in a well-balanced portfolio at a time when the 10-year treasury is yielding around 2.5% is nonsense, then you are correct.  Michael Batnick at The Irrelevant Investor wrote a follow up to the Wall Street Journal story called The Math Doesn’t Work that used CalPERS as an example of just how delusional return projects currently are (emphasis mine):

The Wall Street Journal reports that Calpers, which currently has $341.5 billion in assets, has a target allocation of 50% to stocks and 28% to bonds, leaving the remaining 22% invested in things like real estate, private equity and other alternative investments. With stock valuations and interest rates where they are, and a target return of 7%, it’s probable that some tough decisions will need to be made in the coming years.

If we assume that stocks do 5% a year for the next decade, and bonds return 3% over the same time, then the third bucket would need to generate 16.6%, net of fees, to hit the 7% bogey. And if we do enter an environment where stocks do 5% and bonds do 3%, then the chances that $75 billion (22% of $341B) can generate returns of 16% is slim to none.

So the broad “hope and pray” strategy in place here is to assume that stocks and bonds will basically return what the market will bear (it’s difficult to out perform broad indexes when you have hundreds of billions in assets) and then hope that the alternative assets in the portfolio perform incredibly well.  However, most of the alternative assets that pension fund hold are not opportunistic in nature since that would represent too much risk.  In real estate, for example, the vast majority of a pension fund portfolio would typically consist of core and core plus assets that generate IRRs of roughly between 6% and 12%.  Considering that they need to generate 16+% net of fees, it’s not difficult to see why pension funds are still demanding mid-20s IRRs on residential development even though the market as a whole can’t sustain it.

Private equity continues to pitch LPs (often pension funds) that they can generate high returns across a development/opportunistic portfolio.  Why? Because they have to.  If one private equity firm lowered their return projections, their competitors would simply swoop in and maintain the high projections anyway and, in telling the pension fund what they wanted to hear would likely win the business.  Also keep in mind that the private equity fund’s promote is based off of the high return projections.  If projections are missed, they fall out of the promote promote so there is little incentive to allocate more capital to the space even if total returns are actually good compared to alternatives.  This puts pressure on operators to be overly aggressive with underwriting assumptions in order to show adequate returns but ultimately leads to under-performance if everything doesn’t go right.   The aggressive underwriting inevitably puts pressure on every level of the deal structure since everyone from the Sponsor to the allocator to the private equity manager has their economics tied into projections that are often un-achievable.  As a result, several private equity funds have ditched their allocators in the residential development space and started providing capital directly to sponsors.  However, this can come with it’s own pitfalls since the funds are often understaffed to handle the level of asset management that this requires.

The obvious solution here is to make projections consistent with what the market will bear for managers across the board but that would require pension funds admitting en masse that they have been hiding the weenie for years in terms of the size of their  deficits and they clearly aren’t prepared to do that.  So instead we muddle through with everyone pretending that opportunistic returns are the same in an environment where the 10-year is yielding 2.5% as they were in an environment where it was yielding 10%, leading to inevitable disappointment since expectations are simply too high.  I’ve been critical of private equity as a source of equity capital for real estate development projects for quite a while.  It’s not a particularly flexible investment vehicle and the returns that are needed in a multi-promote structure typically only work for a relatively brief time when the proverbial blood is in the streets.  Unfortunately, in today’s market there just aren’t that many options outside of private equity for real estate projects of a relatively large size.  I remain hopeful that a new sort of investment vehicle will fill the void but we are not there yet.


Getting a Bump: 2018 begins with workers in 18 states getting minimum wage increases.

What Goes Up…: The US dollar had it’s biggest annual decline since 2007 in 2017.


Going Green: Mike Tyson is breaking ground on a marijuana farm and luxury resort in a California ghost town south of Death Valley. (h/t Jeff Condon)

No Silver Lining: Why the mall crisis may actually be worse than we previously thought.


It’s Difficult to Make Predictions, Especially About the Future: Why low supply and surging demand could send housing prices soaring in 2018Contra: The new tax law is expected to slow the rise of home values, creating winners and losers.

Company Towns: Facebook, Google and LinkedIn are investing hundreds of millions of dollars in housing.


Not Going Down Without a Fight: The cannabis industry is well-armed to fight back against AG Jeff Sessions and may even be getting bi-partisan support from Congress.

Sign of the Times: Dogecoin was created as a joke about an internet dog meme.  It now has a market cap of over $2 billion.

Failure to Launch: Why Tesla needs to stop making absurd promises and start delivering cars in 2018.  See Also: The unheralded Chevy Bolt is crushing the Tesla Model 3.

Recipe for Disaster: Pizza Hut and Toyota are planning a self-driving car that can deliver meals and possible bake pizzas on the road…..If only a restaurant with edible food would try such a thing.

Chart of the Day

Despite Federal Reserve tightening, financial conditions continue to ease.


Crappy Trip: A flight from Chicago to Hong Kong had to be diverted to Anchorage, Alaska after a passenger smeared poo all over one of the restroomsSee Also: An American tourist downed a bunch of Viagra in Thailand and went on a poo slinging rampage in the airport.

This is Why I Have a Dog: A woman was run over by her own car, which was left in gear while trying to escape a cat attack because, Florida.

Merry Christmas: A British mom was furious after the talking doll that she gave her daughter kept calling her a bitch.

Killing 2 With 1 Stone: Over 3,300 Pennsylvanians requested a permit to eat roadkill in 2017.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links January 9th – Unrealistic Expectations

Landmark Links January 5th – Inevitability


Lead Story….  The French chemist Antoine Lavoisier discovered the Law of Conservation of Mass which states that “matter can neither be created or destroyed” in 1785.  As a corollary to this, I’d like to propose a new law in 2018: the California Law of Conservation of Taxes.  It states that a tax can be created in the state of California but can never be destroyed or even reduced.

Before the end of 2017, the tax reform proposal that dominated much of our economic conversation for months passed.  While writing about the impact a few weeks back in a series of blog posts, I concluded that:

Just like clockwork, there is already an initiative that has been filed which would lead to a so-called “split-roll” where home owners would retain their Prop 13 protection but owners of commercial real estate would not.  The logic employed by the initiative’s backers is likely that the state of California will have a difficult time raising tax revenue due to the inability of high earners to write off state and local taxes against their federal income tax.  Commercial landlords will be receiving generous breaks from the Federal government under the new tax legislation, so they will end up in the cross-hairs when California needs to raise revenue.

As a fairly vocal Prop 13 critic you may think that I would support this initiative.  However, I do not.  Here’s my issue: California is already overtaxed and this initiative would seek to overtax it further.  In order to accomplish this, it relies on voter approval through the initiative process (the entirety of which is dysfunctional to it’s core – but that’s another topic for another day) but offers voters little in the way of tangible benefits to their personal bottom line if it passes, leaving it wide open to attacks from the deep-pocket opposition that will most certainly materialize.

Instead, I would suggest a different route: a revenue neutral proposal that swaps higher property taxes on commercial buildings – excluding for-sale and for-lease residential – for an across-the- board reduction in California’s state income tax in order to provide some relief to overtaxed citizens.  This would be beneficial in a few major ways:

  • It gives voters a tangible benefit to their bottom line by reducing the sky-high income tax that now will not be available to reduce Federal income tax liability. This would be the first time that a Prop 13 reform proposal could actually make the argument that it would save the vast majority of Californians money.
  • California’s revenue base is an unstable mess since it is highly reliant on high income earners and capital gains. Transferring a portion of that revenue to a higher property tax on commercial buildings would help to stabilize this revenue base at some level
  • Excluding for lease-residential (mainly multi-family) would effectively neuter the argument that such a split-roll solution would not shift the burden to renters, many of whom are already stretched.

Now I’m not naïve, this is California after all and our elected officials always overreach when it comes to taxation.  I’m also not advocating for a tax increase, merely noting that if part of the solution is to roll back Prop 13, it should at least be done in a logical manner and in a way that would provide a benefit to the economy.  However, instead of replacing an inefficient tax with a more efficient one, the bungling powers that be in Sacramento and the special interest groups behind these sorts of ballot initiatives tend to double up and simply add the more efficient tax on top of the inefficient one, in a never-ending bid to shake every last dollar out of the pockets of California taxpayers and businesses.  In conclusion, I have been quickly proven correct about the tax reform bill resulting in an attack on Prop 13 but wrong (at least thus far) about politicians and initiative proposers using this opportunity to go about attempted reform in a logical win-win manner.  I’m sure this will not be the last we hear about this issue in 2018.


The “I” Word: Why 2018 could (finally) be the year that inflation gets going again.

Fighting Back: Blue states are scrambling to figure out ways to blunt the negative impact of the new tax law on their residents and preserve lost state and local tax write offs.  See Also: Will the new tax law stall California’s economic growth?


Vanishing Act: Can smaller, more efficient stores save retailSee Also: Retailers still have almost no clue what the hell to do with Millennials.

Looking Good: Why the tax overhaul could end up being a huge win for US commercial real estate investors.


Long Term Wealth: Homes have a much better return profiles than commonly thought versus other asset classes when rent and imputed rent (not just capital gains) are taken into account.

Paralysis: How “Not in My Backyard” became “Not in My Neighborhood” and paralyzed the growth of cities.  See Also: How a closed Par 3 Golf Course in LA became a poster child for NIMBY obstruction of much-needed housing.

Back up the Truck: Investors are piling into suburban rental housing now that the urban luxury apartment boom is slowing.


It’s Lit: Pot is now officially legal for recreational use in California but comes with a whole lot of regulation and risk now that the DOJ has rolled back rules that used to protect dispensary owners from Federal prosecution.

Making Gains: Meet Ripple, the cryptocurrency that has the support of much of the banking system and ran laps around Bitcoin in 2017.  See Also: Why the supply of deals and digital assets is poised to explode upward in 2018.  And: Companies are re-branding as crypto plays and their stocks are going HAM.

Crime Pays: Fabien Gaglio stole $100 million from his clients. Now he’s living in luxury on the Côte d’Azur. (h/t Stone James)

Charts of the Day

Want to know why the Fed is projecting a sub-2% GDP expansion over the long run?  This is why:

So much for the NAR’s disingenuous prediction of doom for the housing market.  It turns out that legislation that encourages people not to sell their homes is good news for home builders (but not for realtors).  Who knew.

Source: The Daily Shot


The Hero We Need:  A British chef was forced to resign after claiming to add meat to an obnoxious vegan’s dish and subsequently received death threats.  I think that she’s a hero.

Plausible Deniability:  A Pennsylvania prison inmate claimed that drugs found in his rectum during a body cavity search weren’t his.

My Kind of List: Year in review lists are mostly lame.  This one is not: All the times in 2017 that Florida put the ‘F’ in WTF.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links January 5th – Inevitability

Landmark Links – Merry Christmas (and a Happy New Year)


Landmark Links is going to be taking a bit of a break the last couple of weeks of 2017 with Christmas and New Year’s coming up.  If anything truly fascinating happens I’ll probably end up posting something (Bitcoin going to $50k… or $0, something unforeseen in the tax bill or an all-time great Florida crime story).  If not, I’ll see you in 2018.

I can’t tell you how much I appreciate your readership.  It’s been a truly enjoyable experience blogging here since 2015 and I’m looking forward to continuing that in 2018!

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links – Merry Christmas (and a Happy New Year)

Landmark Links December 15th – Back Up the Truck


Lead Story….  I’m fairly certain that cocktail party investment banter has been a thing for as long as cocktail parties have.  Around ninety percent of the time it’s fairly innocuous and not all that focused on any one asset class in particular – “so and so put his kid through college by investing in Apple stock, “my neighbor made a big profit flipping a couple of houses,” etc.  However, every few years an asset class rises to zeitgeist-like stature and comes to dominate the conversation.  Back in the late 90s it was dotcom stocks, in the mid-aughts it was real estate and today it is Bitcoin (and other cryptocurrency to a lesser extent).  We’ve all seen how cryptocurrency as an asset class went from virtually unknown to the go-to ice-breaker topic in a few short months.  I haven’t been to a holiday party yet where Bitcoin has not been a significant part of the conversation.  People have made and are making a lot of money (at least on paper) and it’s all the rage right now to speculate where it might be headed next.  Amazingly, these epic gains have come with little to no leverage and almost no role from traditional financial institutions.  That is all about to change.

Pretty much every financial bubble in history can be generally summed up in the following quote by Scott Nations:

Each collapse has been fueled by a new, poorly understood financial contraption that introduces leverage into a system that is already unstable.

Thus far in the Bitcoin mania, one of the few silver linings that I could find is that bitcoin is not a leveraged instrument and was not fueled by credit excesses and margin accounts.  However, that seems to be changing quickly.  This is, after all a market where human beings are involved and getting swept up in financial manias is simply part of human nature.  We have now entered the full FOMO stage of the mania.  The CME has just launched Bitcoin futures, just another step in the road to mainstream after rising over 15x in the past year.  Cryptocurrency is now front and center with even casual investors, getting the front page treatment in major publications, it’s own ticker on CNBC and center stage as a conversation topic at holiday cocktail parties everywhere.  People are taking notice and, just as with previous bubbles are starting to find ways to bite off more than they can chew by levering up.  SEC Chairman Jay Clayton felt compelled to issue a warning letter about Cryptocurrencies and ICOs this week that opened with the following statement (emphasis mine):

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs).  There are tales of fortunes made and dreamed to be made.  We are hearing the familiar refrain, “this time is different.”

The reason that the SEC is so concerned is likely that people are starting to do some really stupid things with leverage in order to acquire as much precious virtual currency as possible and invest in a highly volatile asset class that many of them know nothing about.  From Michelle Fox at CNBC (emphasis mine):

Bitcoin is in the “mania” phase, with some people even borrowing money to get in on the action, securities regulator Joseph Borg told CNBC on Monday.

“We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,” said Borg, president of the North American Securities Administrators Association, a voluntary organization devoted to investor protection. Borg is also director of the Alabama Securities Commission.

“This is not something a guy who’s making $100,000 a year, who’s got a mortgage and two kids in college ought to be invested in.”

The other side of there is another side to this as well: fringe lenders are offering those who bought in early and are sitting on millions of dollars in gains to use their Bitcoin hoard as collateral to take out loans with onerous terms typically in the range of 50% Loan to Value with interest rates as high as 20%.  It’s expensive for sure but better than selling an incurring a capital gain – at least in the eyes of someone who has seen their Bitcoin holdings go up 20% sometimes in one day and believes that it could soon be headed to $100k.  Wonderful.

With all of the publicity after a massive run up in value, it’s not really surprising that this is happening on either end.  After all, why invest $100k when you can lever up using other people’s money, invest $200k and make double the profit for the same investment (minus interest)?  The problem is that if the speculative asset goes down in value, the consequences are far worse than they would be if leverage wasn’t involved.  An investor who speculates with his own capital only stands to lose 100% of his investment if the price goes to zero in the worst case scenario.  However, an investor who speculates with other people’s money stands to lose more than his own capital if the price goes to zero since he will still owe the lender the money that he borrowed.  At a small scale this probably doesn’t move the needle in terms of potential economic impact.  However, at a large enough scale it can create a serious risk to the economy.  Remember back in the subprime boom when people took out loans against the equity in their homes to buy more houses because real estate always goes up in value?  It ended incredibly poorly when that leverage reached a critical mass and values stopped increasing.  Bitcoin speculation is a much, much smaller market than that but I still can’t see any scenario where it’s wise to take out a loan against your house or otherwise to  buy an asset that sees wild swings of over 20% in a 24-hour period on a regular basis.  Just remember, it’s possible to be wrong about something even if you make money (using debt to purchase a highly volatile asset would be one example).  Pretty much everyone who has purchased Bitcoin to date has been proven “right” in their own minds by making money.  It won’t stay that way forever.


Brace Yourselves: JP Morgan and Citigroup are warning investors to prepare for the steepest rate hikes since 2006 in 2018.

Forging Ahead: The Fed raised rates by another 1/4 basis point on Wednesday.  See Also: For the first time in nine months, the market expects two Fed hikes in 2018But See: Bond markets are signaling an economic slowdown despite the Fed’s current trajectory.

Thing of the Past?  How technology has helped to limit inflation in recent years.  See Also: How US shoppers wielding smartphones help to keep a lid on consumer prices.


Still in the Early Innings? How co-tenancy agreements could lead to a death spiral for many American malls as anchor tenants continue to go dark.


There’s a Metaphor in Here Somewhere: An illegal cooking fire at a homeless encampment allegedly sparked the Bel-Air blaze that destroyed homes.  Perhaps this will finally cause rich NIMBYs to recognize that homelessness, resulting from high rent as a result of too little new housing being built impacts everyone…..but I’m not holding my breath.

Something From Nothing: Regulations allowing San Francisco property owners to convert common spaces into accessory dwelling units have brought forth a flood of applications to carve new apartments out of everything from garages and basements to old boiler rooms.  This won’t solve the affordability crisis but it’s absolutely a step in the right direction.


Bank on It? Why 2018 could be the year that online giants like Amazon and Facebook make a move into the finance space.

Uplifting Profile: Viagra’s incredible run ended last week with the release of a cheaper, generic version of the world’s first impotence-fighting pill.  Here’s an oral history of the drug that changed sex and made billions.

Jealous: How one 6-year old – who is far smarter and wealthier than I am – made $11 million in one year reviewing toys on YouTube.  Looks like it’s time for Toddler Links and Baby Links to get to work!

Chart of the Day

Wholesale prices of mobile homes are soaring as manufacturers are having a difficult time keeping up with demand.  This is exactly the type of thing you would expect to see in the midst of a housing affordability crisis.

Source: The Daily Shot


That’s Comforting: When Kim Jong Un’s BFF Dennis Rodman was asked about the feud between North Korea and the US he replied:

“Ain’t nobody got no finger on the button.”

He then went on to characterize the countries’ threats against each other as “entertainment.”  Not sure about you but that makes me feel a whole lot better. (h/t Darren Fancher)

Look What You Made Me Do: The suspect in a Portland stabbing claimed that Taylor Swift told him to do it.

Gotta Hear Both Sides: A fully naked man jumped onto a moving truck, stabbed at it and then ran into the woods with a tire around his neck in 20 degree temperatures outside of Washington DC.

Get Ripped: A man is facing amputation of both of his arms after injecting them with a homemade chemical concoction that made him look like Popeye because, Russia.

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Landmark Links December 15th – Back Up the Truck

Landmark Links December 12th – Schadenfreude


Lead Story…. If I were asked to create the ideal commercial real estate investment vehicle for the general public, it would be transparently priced, have a strong liquidity profile and a low fee structure.  The non-traded REIT, which is basically everything that I wrote in the preceding sentence, just the opposite is possibly the worst vehicle in which to make a real estate investment.  Per Investopedia, a non-traded REIT is (emphasis mine):

A form of real estate investment method that is designed to reduce or eliminate tax while providing returns on real estate. A non-traded REIT does not trade on a securities exchange, and because of this it is quite illiquid for long periods of time. Front-end fees can be as much as 15%, much higher than a traded REIT due to its limited secondary market.

By now, the reason that I have so much disdain this particular product should be obvious: who in their right mind pays a 15% upfront fee for a highly illiquid product that can be easily substituted for a low-cost publicly traded REIT?  Also, how is it even possible to make money when up to 15% of your investment is eaten up by front-end fees?  The answers respectively are: ‘anyone who gets bamboozled by a fee-hungry financial advisor’; and ‘not unless the market is really good.’  For years, advisors who sold this garbage have fallen back on the following pitch: real estate as an asset class yields a consistent income stream of 6% – 7% per annum and is largely uncorrelated to the stock market and non-traded REITS are a great way to generate yield in a low interest environment.  They also are not subject to the daily value fluctuations that publicly traded REITS are because they do not trade widely in a secondary market.  In other words, they do not offer anything close to real time pricing.  The problem with such a claim is that it’s a Schrodinger’s Cat argument: you don’t really know the value of the shares until you go to sell them in a thin secondary market.

The non-traded REIT business had been on quite a roll for years with sponsors raising billions of dollars and advisors making hundreds of millions in fees on the backs of unsuspecting marks….I mean clients.  Then something remarkable happened recently that changed everything: The Department of Labor’s Fiduciary Rule began to roll out which led to a dramatic reduction in commissions and subsequently caused sales of the product to collapse. From Bruce Kelly of Investment News (emphasis mine):

…Conditions haven’t changed dramatically, but nontraded REIT sales have tanked regardless.

InvestmentNews​ reported last month that Robert A. Stanger & Co. expects nontraded REIT sales this year to reach just $4.4 billion, about $100 million less than last year and the lowest levels since 2002.

If the “income, diversify and interest rate” pitch was accurate back in 2012 and 2013, when REIT sales were booming, why isn’t it working today? There is little change in the narrative.

Interest rates have risen only marginally, and with the stock market roaring, wouldn’t it make sense for a broker to peel off some clients’ gains and invest in commercial real estate, a hard asset not correlated to stocks?

With brokers no longer getting juicy commissions for REIT sales, they simply don’t appear interested in selling the product.

Most brokers who still sell nontraded REITs no longer earn the eye-popping 7% commission, the standard rate paid to brokers who sold the product back in 2013, when REIT sales hit their all-time high and brokers sold $19.6 billion of the product.

Well, well, well turns out that sales of this product had nothing to do with the income, diversify and interest rate pitch after all.  Cue my shocked face.  The fact that brokers stopped pushing this rubbish at the very moment when the DOL instituted the fiduciary rule tells you all that you need to know about what financial advisors really thought of it.  Non-traded REITs were little more than a way for advisors to earn astronomical commissions and sponsors to charge above market fees.  The music has now stopped and the game is up.  Good riddance.


Sloppy: The AMT, possibly the most despised tax in America has made it back into the tax reform proposal despite a lot of bloviating from politicians about it’s elimination.  See Also: How the poorly crafted Senate tax bill could result in marginal rates above 100% for some.  And: The complicated stock sale provision that could cost small investors big time when they sell.

Disincentive: How occupational licensing acts as a barrier to interstate migration and hurts economic mobility.


Discount Rack: How Dollar General became rural America’s store of choice.

Slowdown: The number of apartment projects in the planning stage of development in major markets are falling substantially, an indication that construction activity is likely to ease over the next year.


Great News: The FHA is going to increase loan limits in nearly every area of the US for 2018 including a healthy boost for the Inland Empire.

In the Red: The Federal Housing Administration says an insurance program backing reverse mortgages is “losing money and can no longer remain viable in its present form”  with defaults and foreclosures surging.  So much for all of those late night infomercials with famous actors.

Grinding to a Halt: The tax reform bill could be a death sentence for the way that many affordable housing developments are currently financed.


I Really Hope That This is True:  A new study found that eating cheese every day may actually be good for you.

Bitcoin Roundup: Bitcoin futures started trading on Sunday and the price went HAMSee Also: The large discrepancy between prices on Bitcoin exchanges is possible sign of liquidity issuesAnd: About 1,000 people own 40% of the Bitcoin market which helps to make it especially volatile.

Chart of the Day

Business loan growth on banks’ balance sheets remains below 1% per year, a sharp decline from 2017.  Sure looks like companies are putting borrowing on hold until they figure out what their tax situation is going to be going forward.

Source: The Daily Shot


Paging Mr. Darwin: A Chinese man who referred to himself as “China’s First Rooftopper” fell to his death while trying to scale a 62-story building because the gene pool needs chlorinating again.

Level Headed Response: A woman who was busted smoking on a Southwest flight from Portland to Sacramento threatened to “kill everyone on this plane” when she was escorted to law enforcement upon landing.  This will definitely end well for her since no one has a better sense of humor about nicotine withdrawal fits than the TSA.

Future Leader: Meet the Indiana teen who was arrested when she accidentally sent a text message to a police officer offering to sell him meth.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links December 12th – Schadenfreude