Landmark Links June 16th – Speaking in Tongues


Lead Story: Fedspeak was elevated to an art during the Alan Greenspan era.  Today, as we approach a likely rate hike, the Federal Reserve has a difficult task in front of it: assure investors while not making promises as to where rates are headed.


Not what you were expecting: A lot of ink and airtime have been used to state the case that a Federal Reserve rate increase cycle is the biggest risk to the global economy.  A provocative new Bank of America report takes the opposite approach and argues that the largest risk might actually be another round of stimulus.  In somewhat related news, wage growth is actually looking relatively robust….when adjusted for inflation.  However, that wage growth and accompanying economic growth has been far from consistent.  This chart from Bloomberg shows how much each state grew last year.  The results are not surprising: the West is the engine for growth in the US.


Merger Monday: Standard Pacific and Ryland announced a merger on Monday that would make the new combined company the 4th largest builder in the United States with a market capitalization of approximately $5.2 billion.  It’s not surprising to see a big merger like this at a time when builder confidence is rising and supply is still limited.  It also doesn’t hurt when highly respected sources are making projections like this one.

On the negative side of things, despite price gains, there are still high percentage of homeowners with a mortgage who are underwater from a historical prospective. This has a substantial impact on the economy through both reduced consumer spending and economic mobility.  To make matters worse, the rate of improvement has slowed to a trickle.  The US housing market has become largely bifurcated: in hot job markets, prices are extremely high and there are few units available while stagnation has set in everywhere else.  For more proof of this, check out the 9 hottest housing markets in the US according to data from the Case-Shiller Index.  Notice a trend?


Farmers Getting Squeezed Now Too: Governor Brown was roundly criticized earlier this year when he announced water restrictions for California residents but not for agricultural concerns that account for approximately 80% of the state’s annual water usage.  However, the State Water Resources Control Board issued an order last week would curtail use by farmers who hold senior rights in the central valley portion of the state.  Senior rights holders had been spared until this order, illustrating just how serious the drought has become.  Many of those farmers losing their pumping rights will continue to draw ground water, diminishing aquifers and causing portions of the state to sink at an alarming rate.

You’ll Have to Pry That Hose From My Cold Dead Hands: At the opposite end of the spectrum from farmers lie the wealthy communities like Beverly Hills and Rancho Santa Fe where some homeowners have enough money that they are willing to pay increased rates and face fines and ridicule to keep their lawns green, their pools full and their fountains flowing.  Rancho Santa Fe’s water usage actually rose 9% after the governor’s water reduction order was made.  In the grand scheme of things the amount that these people are using isn’t actually all that relevant but, at a time when the state is struggling, this is basically the nuclear version of bad optics.

Chart of the Day

Underwater and Still Above Normal

Source: Bloomberg


Sinking Subway: Subway is the largest fast food restaurant in the world with more locations than both McDonald’s and Starbucks combined.  However, the chain has been losing market share to higher end fast casual rivals like Chipotle, Firehouse Subs and Shake Shack.  It also might have something to do with “Sandwich Artists” doing gross crap like this or perhaps the fact that up until recently they used a chemical used in yoga mats in their bread.  Either way, consumers are clearly developing better taste and the chain will have to change if it wants to keep up.



Billionaire Bunkers: A developer is creating a luxury bunker resort that is available by invitation only.  The project is located in Germany on a 76 acre site and is one of the most fortified underground survival shelters on earth.  No word on whether or not the units come with tinfoil hats.

Only in Russia (or at least a former Soviet republic): A massive storm in Tbilisi, Georgia caused flash flooding which resulted in wolves, bears, lions, tigers and at least one hippo getting free from a city zoo.  The head of Georgia’s Orthodox Church said that the flood was punishment for the zoo being built by the country’s former communist rulers.

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Landmark Links June 16th – Speaking in Tongues

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