Landmark Links January 18th – Potentially Explosive Development

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Must Read: UK regulators have given the go ahead for a new type of property exchange called IPSX where investors can trade shares in individual properties.  If successful, this could eventually become an alternative to REITs.  IPSX hopes to launch its first property IPOs by the end of the first quarter of 2019.

Economy

Uneven Recovery: Millennial women are the big winners in the jobs recovery as men continue to struggle.

Overshot: Two leading experts on the “gig economy” now say that their estimates of its impact were too high, skewed by spotty data and the recession of a decade ago.

Priced Out: The cost of living in vibrant cities is more than offsetting the higher wages available there for lower-earning employees.

Commercial

Size Matters: Blackstone Group LP is about to finish raising the largest ever real estate fund which is projected to total $20 billion.  Blackstone will focus on opportunistic investments and the fund’s massive size ($60 billion in buying power once leverage is applied) means that they will be focused on huge deals. (h/t Steve Sims)

Side Hustle: In news that should shock no one (at least not regular readers of this blog), the founder/CEO of WeWork is selling equity in his company and using it to buy buildings which he then leases back to WeWork.  Looks like someone is trying to become the next Eddie Lampert.

Transformers: A developer out of New York has a plan to transform vacant malls into retail warehouse hybrids.

Residential

No Surprise Here: California’s housing supply is the tightest in the nation.

In A Hole: The plight of golf course home owners is an increasingly-real thing as courses continue to close and young people continue to lose interest in the sport.

Big Guns: Microsoft is pledging $500MM to develop more housing for low and middle income workers in the Puget Sound area, including $225MM earmarked to lend to developers at below-market interest rates in order to develop workforce housing (aimed at households making between $62k and $124k per year.

Profiles

Dried Out: Research shows that ditching booze for a month has several health benefits—that sometimes last for quite a while.

RIP: Vanguard Investments founder John C. ‘Jack’ Bogle passed away on Wednesday at the age of 89.  Bogle turned investing upside down by pioneering low cost, transparent index funds.  There has probably never been a greater advocate for small investors.

Chart of the Day

Your horoscope for 2019:

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Source: The Big Picture

WTF

Living Her Best Life: A woman who was busted drinking wine from a Pringles can while riding a motorized scooter around a Walmart parking lot has banned from said store because Texas.

Gotta Hear Both Sides: A Philadelphia woman was accused of attacking her girlfriend, and putting her dog in microwave after the Eagles were eliminated by the Saints because Eagles fans.

Show Me Your Assets: A stripper undressed in a bank in an effort to secure a loan because Russia.

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

Visit us at Landmarkcapitaladvisors.com

 

Landmark Links January 18th – Potentially Explosive Development

Landmark Links January 15th – Adding Some Teeth

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Must Read: For fifty years, California has required cities and counties to submit plans for enough new housing units so that residents of various income levels can live affordably.  However, many local governments have treated this planning exercise as something between a formality and a joke and have failed to approve anything close to enough units, thanks mainly to the fact that the state has no mechanism for enforcement.  Those days may be coming to an end as new Governor Gavin Newsom is threatening to withhold state transportation revenue from cities and counties that did not meet their housing goals.  That being said, if our new governor really wanted to mend California’s housing woes he should start on CEQA reform.  However, to the best of my knowledge he has not yet mentioned it.

Economy

Diminishing Returns: It now requires increasingly higher levels of debt to generate the same level of growth.

Turnaround: How Japan defied demographics and revived its economy by encouraging the elderly and women to work and breaking longstanding taboos against immigration.

Subdued: Last week’s CPI report came in light, confirming exactly what the market has been indicating for a while now – inflation is not a problem.

External Risk: Why China- whose government’s novel credit directives are showing diminishing returns – is a bigger risk to the health of the global economy than the US is right now.

Commercial

Spare a Dollar? Down-market discount stores like Dollar Tree and Family Dollar are looking overbuilt after being in expansion mode for several years.

A Bridge Too Far: Even VC sugar daddy Softbank is getting cold feet about investing in incredibly expensive, money-losing WeWork as big investors question whether or not the co-working company is actual a technology play (it’s not) or just an incredibly expensive real estate investment (it is).

No Longer a 3rd Rail: Proposition 13 is no longer off limits in California, at least when it comes to commercial property.

Residential 

Concessions: As the housing market slows, builders are offering a growing list of buyer discounts.

High Hurdle: What happens to the country if the only young people who can buy houses are already wealthy? We’re about to find out.

Bright Spot: Newly built homes for rent are a bright spot for the increasingly struggling home building industry.  See Also: Wall Street’s biggest landlords are so hungry for houses that they are building them.

Profiles

A Better Way: Income Sharing Agreements are gaining the attention of higher education and Wall Street. One early success story is getting a boost from venture capital.

Falling Short: After one year of pot sales and California has nothing close to the bustling industry that it projected thanks to over-regulation.

Don’t Call It a Comeback: Why the west coast is (finally) beating the east coast when it comes to transportation.

Charts of the Day

This does not bode well…

Graphic

WTF

How’d That Get There? A man who had syringes found in his rectum during an arrest and body cavity search claimed that they weren’t his because Florida.

You Want Fries with That? An unidentified man walked into a California McDonalds with a bloody, dead raccoon, leaving it on a table and causing the health department to shut the restaurant down.  In an ironic twist, tests showed that the critter carcass was healthier to consume than anything on the menu.

Finger Lickin’ Good: A truck-full of chicken tenders crashed on a highway, and the sheriff’s office had to tell people not to eat them because Alabama.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links January 15th – Adding Some Teeth

Landmark Links December 28th – Not Quite As It Seems

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Quick programming note: This will be my last post for 2018 and I’m heading out of town for a family ski trip through the 10th so don’t expect much blog activity the first couple of weeks in January either.  Wishing all of you a happy new year and a great beginning to 2019!

Lead Story: One of the most consistent themes around the Landmark office over the past few months has been the compression in spread between equity returns and debt yields on commercial real estate properties since late 2016.  I wrote about how this was making it very difficult to find accretive debt – a loan where the property yield exceeds the mortgage constant – back in October.  In that post titled The Great Compression, I noted the following:

Ultimately, there are two parts of the real estate cycle. In the growth phase, the spread between debt yields (borrowing costs) and equity returns widens. In the contraction phase it compresses. Stable cap rates and increased interest rates have resulted in a compression where debt yields are rising while equity returns are actually falling. As such, we now find ourselves very solidly in the contractionary part of the cycle. We are also at a point where traditional fixed rate debt with 25-30 year amortization tables is no longer accretive to cash flow. For example, a 4.98% interest rate (10-Year Treasury + 175) has a loan constant of 6.43% (the loan constant takes the portion of the payment that goes towards amortization into account as well as the interest payment) . However, good luck trying to find a well-located, leased property that yields much above 5.5% on a stabilized basis in this environment in top performing markets. If you borrow at 6.43% on an investment that yields 5.5%, you have a problem. By way of example, that same spread would have resulted in a constant of only 5.34% on a loan with a rate locked in the final weekend of October, 2016 – a full 100 basis points lower. Lenders have largely accommodated this negative movement in rates by allowing for ever-longer interest only periods in exchange for steadily lower leverage – effectively pre-amortizing a loan. However, the lower leverage requires more equity and, as such, lowers the returns on that equity even further. This can only continue for so long until borrowers and their equity partners cry “uncle!” and demand a higher return on their capital for the risk that they are taking versus those in junior and senior lien positions.

Debt yields have fallen since I wrote that post but the issue still remains: debt is more expensive than it has been in the past and equity returns are falling.  Peter Grant of the WSJ ran with the return compression theme in the Wall Street Journal earlier this month.  From the WSJ (emphasis mine):

Now, a crucial relationship between property market yields and rates offers another reason for concern.

Commercial property yields have stayed relatively flat for the past 12 months. Meanwhile, mortgage rates have started climbing this year tracking global interest rates, which are rising as expanding global growth is stoking concerns of higher inflation.

At the end of the third quarter the average rate borrowers paid on loans packaged into commercial mortgage-backed securities was 5.03%.

One year earlier it was 4.52%, Trepp said. That increase “is a big deal on multimillion-dollar properties,” said Joe McBride, Trepp’s research director.

The last time yields were this close to interest rates was near the market’s previous peak in 2007, which was followed by a 35% decline in commercial property prices when the market was pounded by the financial crisis and recession.

Not everyone thinks it is time to head for the exits. A still expanding U.S. economy and the amount of money sloshing around the market suggest the bull run can continue.

The WSJ article also featured the following chart from Trepp, Inc to help illustrate the compression that the market is experiencing.

Compression

First off, I’m glad that they picked up the theme as it is arguably the biggest story in the commercial real estate world right now and isn’t getting much play in mainstream financial publications.  That being said, I do have a bit of a quibble with the way that the data was presented.  The entire WSJ story mentioned the interest rate but never mentioned the loan constant, which is the true metric that should be used to judge whether or not a loan is accretive since it measures free cash flow (amortization is typically not optional and must be accounted for).  As such, the picture is substantially worse than that portrayed above.  For example, the Q3 2018 data provided by Trepp shows an average property yield of 6.45% and an average lending rate of 5.03% or a spread of 142 basis points.  However, its safe to assume that property owners who are borrowing at that 5.03% rate are not all taking out interest only loans.  Assuming a 30-year amortization (this is best case as many commercial loans have 25-year amortization), a loan with a 5.03% interest rate has a constant of 6.46% which means that, on average debt was slightly unaccretive in the 3rd quarter.  The numbers are considerably worse for certain property types (mostly industrial and multi-family) and in coastal markets where property yields are substantially lower.

This compression is something that can go on for a while.  Borrowers and lenders will go with lower advance rates in exchange for interest only loans but that means that more equity will generally be required which pushes equity returns down further.  Eventually something has to give but it remains to be seen when.

Economy

Holding the Line: The Fed raised rates again this month and issued hawkish guidance as well but it is a decision that could come back to bite them.

On the Books: Banks are now stuck with $1.6 billion of unsold loans amid the ongoing market rout.

Unscathed: Australia has managed to avoid recession for nearly 30 years thanks largely to a boring banking system, an aversion to austerity and openness to immigration.

Commercial

Hoarder Nation: Wall Street is starting to worry that America’s for-rent storage space may be outpacing the volume of the country’s excess belongings.  However, demand has shown no sign of backing off. (h/t Scott Ramser)

Piling On: Looming tariffs mean that retailers are stocking up, filling warehouses to the ceiling, driving demand for more space and exacerbating an already incredibly tight market.

Residential

Dabonomics: Clemson’s top tier college football program has led to a boom in demand for alumni 2nd homes near the university and an economic renaissance.

Recap: How the financial crisis led to a housing shortage and a substantially lower home ownership percentage over the past decade.

Profiles

Tunnel Vision: Elon Musk is unveiling his tunnel system for LA cars.  However, the better application may be for freight.

Stumbling: Amazon’s grocery push has not gone as planned post Whole Foods acquisition.

Fake it Till You Make It: The insane story of a counterfeit Saudi Prince who scammed investors out of millions.

Heroes: Everyone loathes robocalls.  Some people try to get even.

Chart of the Day 

One has to wonder what this will look like when things actually get ugly.

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WTF

Gotta Hear Both Sides: Lindsay Lohan’s step mother attacked a bus driver and attempted to drive off because Florida.  Also because alcohol.

Devil Made Me Do It: A man said that he rammed a school bus to escape from Satan because drugs.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links December 28th – Not Quite As It Seems

Landmark Links December 21 – Barrier to Entry

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Must Read: This quote from a recent BuildZoom article by Issi Romem sums up the negative feedback loop in construction costs quite nicely:

However, construction wage growth could also be part of a dangerous, self-reinforcing cycle. Rising construction costs tend to reduce the supply of new housing because they shift marginally-worthwhile residential development into the red.8 This helps raise housing costs, which in turn feeds back into construction wage growth for at least three reasons:

  • When housing prices rise, workers require greater compensation to subsist.
  • When housing prices rise and the supply of homes is smaller than it would be otherwise, it is harder for people to find suitable homes for sale (and to afford them). This creates a greater incentive for renovation, which exerts upward pressure on labor costs as suggested earlier.
  • When housing prices rise, the pool of potential home buyers becomes more financially select, which likely corresponds to higher expectations with respect to homes’ level of finish.9 Once again, this means that more renovation is bound to take place (including home-flipping), exerting even more upward pressure on labor costs.

And, higher labor costs reduce the supply of new housing. Repeat ad infinitum.

This is a good reminder that restrictive zoning is a major problem when it comes to the housing affordability crisis but it is definitely not the only one.

Economy

Staying the Course: The Fed hiked rates in a predictable fashion.  Could it come back to bite themSee Also: Jerome Powell says that he is following the data, not the marketContra: Treasury inflation forecasts continue to fall after the Fed rate hike.

Long Strange Trip: Ten years ago the Fed moved rates to zero and built up a massive balance sheet in order to counter an economic crisis.  The move changed the way that the central bank operates and now that a zero interest rate policy has been used once, it’s more than likely that it will be utilized again.

Debt Sentence: US student debt outstanding has reached a record $1.465 trillion, doubling since the Great Recession. In addition, a shocking 2.7 million borrowers owe in excess of $100k.

Commercial

Big Questions: From tech to rising interest rates to the death of traditional retail, here are ten questions that real estate has to answer in 2019.

Sad Santa: Nearly vacant malls mean that a lot of Santa Clauses are not very busy this holiday season.

High Hurdle: Multi-story warehouses will continue to become more common as the demand for last mile distribution in densely populated areas keeps increasing.  However, these properties are expensive to build and operate as well as more operationally intense than traditional single story warehouses.

Residential

In the Right Direction: FHA loan limits will increase in most of the US in 2019.

Correction Territory: Single family housing starts fell more than 13% last month from a year earlier, following a sharp drop in homebuilder sentiment to the lowest level in 3 years.  John Burns now says that we are in a housing correction.

Suffocating: Housing affordability issues are already leading to a decline in total economic activity in some regions.

Profiles

Pushback: Amazon is pushing its partners for changes in product packaging and quantities in an effort to weed out unprofitable items.

Fake it Till You Make It: Rising Instagram “stars” are increasingly posting fake sponsored content to make it appear as if they have more financial backers.  Don’t laugh though as this will be one of the last viable ways to make a living once the robots take over in about five years.

Branching Out: Yuppies have discovered marijuana and they like it.

Chart of the Day

Tis the Season (h/t Doug Jorritsma)

The Drunkest States In America During The December Holidays

Source: vinepair.com

WTF

The Hero We Deserve: An ex-NASA engineer created a fart-spray laced glitter bomb package that detonates when a porch pirate opens it.  The thing has cameras and the video is hysterical.

Marketing Genius: Fried chicken chain Popeyes is selling meals in a chicken shaped container labeled “Emotional Support Chicken” to stressed out travelers in airports during the holiday season.

Getaway: A man was being taken to a mental health facility when he carjacked an ambulance, leading to a police pursuit.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links December 21 – Barrier to Entry

Landmark Links December 18th – Back to the 90s

Saved by the bell

Must Read: Current housing market turbulence has many pundits looking for another 2008-like crash.  However, 1994 seems to be a better analogy.

Economy

Behind the Curtain: Japanese banks might have snapped up a third of the loans made to highly indebted U.S. companies, propelling the size of the market past $1 trillion, a new estimate from UBS Group AG suggests.  However, worries are spreading that cracks are beginning to develop in the space.  See Also: Not a single high-yield bond has priced in the market so far in December.  If this trend continues through month-end, it would be the first time since 2008.

Supply and Demand: Full employment is the best weapon against income inequality.

Pushing Uphill: Financial conditions may be tightening more than currently thought.

Commercial

Not Worth Saving: Most of those shuttered Sears stores are going to be cheaper to knock down and rebuild that to retrofit for new users.

Battleground: Despite recent advances, e-commerce retailers are still scrambling to get last-mile logistics right and cut delivery times down.  See Also: Retailers are resorting to using tents on vacant suburban lots and converting under-utilized parking garages in order to accommodate the surge of last-mile volume over the holidays.

Residential

Bold Steps: Minneapolis is getting rid of restrictive zoning entirely.  See Also: Not to be outdone, Oregon could become the first state to ban single family zoning statewide.

Not Immune: Even Texas is facing an increasingly bad housing affordability problem as restrictive zoning within the Dallas-San Antonio-Houston triangle takes a toll.

Correction?  Borrowing costs for mortgages are now at a 3-month low.  If higher rates sank US home sales, will lower rates help them rebound?

Common Sense: Homelessness rises more quickly where rent exceeds a third of income.

Profiles 

Gross: A report by ESPN Outside the Lines found an astonishing number of health violations as well as slime, roaches and mice in stadium food venues.

Burned Out: GE Powered the American Century, then made a series of critical poor business decisions by becoming overly reliant on finance and energy at the worst possible times.  This is the best summary I’ve read of it’s spectacular fall from grace.

The Heist: An oral history of the most important deal in sports TV history, when Rupert Murdoch and Fox stole the NFL and John Madden out from under the Big Three networks, created the modern pregame show, invented a new way to see football, and launched a television empire.

Self-Parody: California is now considering taxing text-messaging.

Someone is Cutting Onions: I never thought I’d get teary-eyed over a story about Charles Barkley’s friendship with a Chinese cat litter scientist from Iowa, but here we are.

Chart of the Day

Only 0.9% of leveraged loans are trading above par value, compared to around 70% just a few months ago.

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Source: Bloomberg

WTF

Want Fries With That? A man offered to pay an undercover officer for sex with a hamburger because Florida.

Cool Headed: A pulled fire alarm in the English town of St Ives prompted a man dressed as Santa Claus to burst out of his grotto, rip off his beard and scream at children to “get the f**k out” in the middle of a Christmas event.

Smells Like Chicken: KFC debuted a fried chicken-scented firelog last week and promptly sold out because apparently a substantial portion of the US has no problem with their homes smelling like bad fast food restaurants.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links December 18th – Back to the 90s

Landmark Links December 14th – Downstream Pressure

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Must Read: A housing market slowdown where builders retrench further from already meager construction starts would be bad news for renters (and good news for multi-family investors).  Household formation has a positive demographic tailwind and there is not a readily available substitution for either owning or renting.  Therefore, fewer new for-sale units = more renters = higher rents.

Economy

Overburdened: Former Fed Chair Janet Yellen is sounding a warning about ballooning levels of corporate debt that she says could prolong a downturn.

High Cost: Markets are now judging the US to be a riskier borrower than China for 1 year treasury notes.

Peace Out: Workers are increasingly ghosting their employers like bad dates – in other words, just leaving without telling anyone.  This is the perfect storm of a strong economy and weak social skills.

Commercial

Rotten Core? Returns on investment for core properties are relatively low compared to other risk profiles due to their perceived safety.  However, publicly traded REITs are signalling a coming expansion in cap rates which could lead to substantially more return erosion than investors commonly think.

Looking Ahead: From Opportunity Zones to prop tech to value-add multi-family, multi-story warehouse and a resurgence in retail investment – here are 18 commercial real estate trends to watch in 2019.

Residential

In Good Company: My critique of Robert Shiller’s housing article that the current “housing boom” has been in price only, not production is similar to what Bill McBride of Calculated Risk had to say so I guess I’m in good company.

Money Where Your Mouth Is: California governor elect Gavin Newsom promised to fix California’s housing crisis.  If he’s really serious, he should come out in full support of State Senator Scott Wiener’s SB-50.

Profiles

Often Wrong, Never In Doubt: This piece by Bloomberg View’s Barry Ritholtz about why you should disregard all coming predictions about 2019 is hysterical (also true) and contains this gem:

Gold: Before all the gold bugs migrated to Bitcoin, the precious metal was where they went to make their bad forecasts.

Remarkable: A decade after Bernard Madoff was arrested for running the world’s biggest Ponzi scheme, Trustee Irving Picard is close to recovering $19 billion of the $20 billion in principal lost by clawing back capital from those who received fake profit distributions.

Don’t Call it a Comeback: After a catastrophic year that saw its stock price drop from $3,000 to under 2 cents (after a 250-1 reverse stock split), Moviepass is licking its wounds and trying to revive its fortunes with a new tiered pricing structure.

Only One Way Out: Why Uber’s only road to potential profitability is becoming an ad company.

Chart of the Day

A market that overheats in price doesn’t necessarily overheat in terms of production.

Source: Freddie Mac

WTF

Burn it With Fire: We can now add dead mice in soda machines to raw sewage leaks and E. coli in the visitor’s training room at the Oakland Coliseum.

Snitches Get Stitches: China’s government anti-porn force is offering to pay people $86k to snitch on porn watchers and sharers because dystopia.

Best Foot Forward: A man was arrested for shoplifting after a job interview at Kohl’s because Florida.

Love is Dead: An Irish woman who married the ghost of a 300-year old pirate sadly announced that the couple has split up.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links December 14th – Downstream Pressure

Landmark Links December 11th – Not Rocket Science

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Lead Story: Nobel Laureate Robert Shiller wrote a piece for the NY Times this weekend discussing how the current housing market run-up in price is now the third highest in history behind only the post-World War II era and the housing bubble of the aughts.  The article makes the typical strong points and solid analysis that one would expect from arguably America’s foremost housing economics expert.  Shiller discusses how the increase in house prices after WWII was brought on by a booming economy, limited supply and demand from returning soldiers starting families and the generous incentives offered to them by the government.  He also goes into detail about how easy credit, low interest rates and government policy pushing for an “Ownership Society” led to the aughts housing bubble.

One place where the article falls short though, IMO is the analysis of the current run up in values.  Shiller discusses low interest rates and a growing economy but points out how those factors do not always lead to higher prices historically.  He also points out that housing costs cannot outpace income growth forever, which only a fool would disagree with.  However, he really doesn’t touch on the critical factor that has driven price increases beyond wage growth in the current cycle: the lack of adequate housing production to meet demand.  Academic research indicates that we have a housing unit deficit of 2.5 million and continue to fall behind. Shiller addresses both interest rates and economic growth as potential causes (emphasis mine):

But the market reaction to interest rates is hardly immediate or predictable. The housing market does not react as directly as you might expect to interest rate movements. Over the nearly seven years of the current boom, from February 2012 to the present, all major domestic interest rates have increased, not decreased. So, while interest rates have been low, they have moved the wrong way, yet the boom has continued.

Another explanation is simple economic growth. But, as a matter of history, prices of existing homes — as opposed to the supply of newly built homes — have generally not responded to economic growth. There was only a 20 percent increase in real prices of existing homes in the 50 years from 1950 to 2000 despite a sixfold increase in real G.D.P.

Note in the second paragraph above that Shiller rightly points out that economic growth typically leads to more starts, not necessarily higher prices.  The difference in this cycle is that economic growth did not lead to the typical boom in housing construction, which has been mired at near-recessionary levels, despite a long growth cycle.  As such, the capital created through a growing economy was focused on a relatively small number of units to provide shelter rather than spread across a large number of units as has happened during previous economic booms.  When demand exceeds supply, prices tend to rise which is exactly what happened here.  It’s truly puzzling to me why this was not addressed in the article as it seems to be a critical detail.

Unfortunately, a housing slowdown will make this deficit even worse since production will slow even further if builders can’t turn a profit.  Housing is a unique asset as it is a combination of consumption and investment.  When it comes to the consumption component, there is not a readily available substitution to either owning or renting.  If household formation and population growth outpace production at a time to economic expansion, prices will rise substantially as they have since 2012.  Making matters worse, it becomes steadily more difficult to construct more units in such an environment since inputs become more expensive and the ability to pass increased costs on to buyers decreases since wages aren’t keeping pace (unless, of course interest rates are falling – which they are not). As such, production will likely fall when it is needed the most as it becomes less and less profitable to build.  If you want confirmation of this take a look at the price chart of a publicly held home builder or read one of their earnings reports.

I conclusion, I do not disagree with Professor Shiller that there will be a day of reckoning at some point if price growth (and for that matter the monthly cost of ownership now that rates are rising) continue to leave wage growth in the dust.  However, I also think its important to point out that this situation was caused by a lack of production to meet demand in the market (both for sale and for rent) just as much as the post war run-up was caused by demand from GIs and the housing bubble was caused by government policy, low rates and exotic mortgages.  Its difficult to contemplate a market’s ultimate undoing without acknowledging how it got here in the first place which is why one cannot have this discussion without first acknowledging the elephant in the room: supply.

Economy

Gusher: The US just became a net oil exporter for the first time in 75 years.  See Also: Cheaper oil isn’t the domestic economic boon that it used to be.

Overlooked: While the yield curve gets all of the attention, the difference between the earnings yield on stocks and the yield on cash is an often overlooked but very reliable indicator of a bear market that has been flattening of late.

Commercial

Re-Arranging The Deck Chairs: If Eddie Lampert really wanted to save Sears and Kmart, perhaps he’d be better off making the stores feel less like prison commissaries rather than endless financial engineering.  But See: Eddie Lampert may have shattered Sears (and his reputation) but he has made billions on the deal thanks to the structure of his investment vehicle and a healthy dose of financial engineering.

Other Side of the Story: Despite a lot of critics (like yours truly) who have been ranting about corporate welfare, a recent poll found that New Yorkers approve of Amazon moving to their city by an overwhelming majority.

Not Quite As Intended: Opportunity Zones were created a year ago with the hope that they would breathe new capital into under-invested areas.  However, early results show a rush of capital into zones in cities like LA any NY that were already attracting investment and little new capital going into depressed rural areas where it is needed most.

Residential 

Piling On: Northern California’s recent wildfires have burned homes at a greater pace than developers are building them, deepening a housing shortage that already has left millions struggling to find affordable places to live.

Thinking Big: California State Senator Scott Wiener has introduced a a refined version of an unsuccessful measure he wrote last session to make it easier to add four- to five-story apartment buildings near transit centers without local government OKs.

Profiles

Not to Scale: Uber is not a scale-able business because larger size does not bring operating prices down.  That, combined with the lack of a network effect, indicate that the world’s most valuable private company could be dramatically overvalued.

Addicted: A new survey from Business Insider found that 44% of millennials would rather give up sex than quit Amazon for a year. and more than three in four millennials would choose Amazon over alcohol.  In other words, our demographic future is pretty much screwed.

And You Thought Bitcoin Was Bad: California Utility PG&E sold a $200MM catastrophe bond in August to insure against liability from future fires.  Now the company is being blamed for the blaze and the bond has lost 95% of its value.

Down the Tubes: Someone made a million dollar derivative bet a year ago that Bitcoin would be worth $50k by December 28, 2019.  Barring the greatest rally of all time, it will expire worthlessJohn Mcafee was unavailable for comment.

Chart of the Day

All about the three point shot (h/t Steve Sims)

NBA

WTF

Golden Grahams: A Tennessee man faces up to three years in prison for urinating on a Kellogg’s cereal conveyor belt at a Memphis facility.

Tis the Season: A kid in Great Britain caused quite a stir when he brought a blow up sheep sex doll that he got on line to a school nativity play.

Happy Meal: Three Sonic employees were arrested after ecstasy was found in a kids meal.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links December 11th – Not Rocket Science