Landmark Links November 13th – Retail Therapy


Lead Story….  Despite convention wisdom, Black Friday, the annual low-water mark for capitalism isn’t the most popular online shopping day of the year.  Nor is Cyber Monday.  Not even close.  Leave it to ostensibly Communist China (arguably the most capitalistic country on earth) to come up with Singles Day: a Chinese holiday celebrated every 11/11 (1111, you get it?) where singles buy a bunch of stuff that they probably don’t need to make themselves feel a little bit better about being single.  Judging from the numbers, China has A LOT of single people (One Child Policy, anyone?).  Wednesday of this week was the biggest shopping day in internet history with Alibaba accounting for $14.3 billion of sales on it’s own.  To put that in prospective, consumers spent a total of $1.5 billion online last Black Friday and $2.65 billion last Cyber Monday.  The above is somewhat anecdotal evidence but recent economic indicators show that China is out of the so-called “danger zone” and that risks are receding.  If the spending habits of Chinese singles are any indication, the world’s 2nd largest economy could be one less headache for the Federal Reserve as they ponder whether or not to raise rates for the umpteenth time.


Recap: Last week’s jobs report showed that the US labor market may be in better shape than previously thought. See Also: Everything that small businesses are saying point towards an increase in wages.

It Works 60% of the Time Every Time: Goldman Sachs says that there is a 60% chance that the current expansion lasts a full 10 years.

Rationale to Raise: The real reason that the Fed is anxious to raise rates is that Americans are starting to borrow big again. See Also: Some of the most astute Federal Reserve observers now believe that a December rate hike is a forgone conclusion.


Counter-intuitive: In another example of narrative versus cold hard fact, a careful analysis of past interest rate cycles shows that higher long term rates do NOT NECESSARILY lead to higher cap rates and lower asset prices. (h/t Tad Springer)

Still Booming: Multi-family mortgage originations were up 12% year over year in the 3rd quarter and show no signs of slowing.

Shot Across The Bow? The president of the Boston Fed recently used the B word to describe commercial real estate price growth when viewed in context with GDP growth.


Low Supply + High Demand = Trouble: Coldwell Banker Real Estate recently published a new study on housing affordability across the US.  The fact that the 8 most expensive markets in the US are ALL located on or near the California coast should be surprising to approximately no one, who follows this sort of thing with the most casual of interest. Extra shout out to Landmark’s hometown of Newport Beach which somehow managed to find itself atop the list despite not being adjacent to a major city or tech hub.  Does coastal California really have that much higher incomes than NYC, Washington DC, Seattle and other booming metropolises?  The answer is no. The sad reason that California is so outrageously expensive is simple: land and development constraints.  In other words, California is a kingdom of NIMBYs.  Earlier this week, we posted a story from Kevin Erdmann who writes the blog Idiosyncratic Whisk and is doing some amazing research on the impact that closed access cities have on real estate prices, income inequality and economic growth.  Kevin does a great job of describing exactly what is happening in coastal California here:

“In cities where housing constraints become more binding and where there aren’t open-access suburbs capable to absorbing new population, households eventually reach a lower limit in real housing consumption, where they are unwilling to downsize any more in order to retain a comfortable level of housing expenses.  In these cities, rent/income ratios start to rise.  Some households will still be shifting to less valuable units (in terms of rent), so we see rent inflation in these cities that is mitigated partially by lower real housing consumption as a proportion of income.  Faced with this problem, households who prefer not to leave the city will accept higher housing costs to a point.  Since there is a limit to new population growth, residents capture the economic rents from the geographical advantages that have led to higher incomes.  The gains will tend to eventually accrue to real estate owners, as households bid up rents in an attempt to capture those higher incomes.  So, incomes after rent expenses will stagnate even as gross incomes rise.
Eventually, the constraint becomes so severe, as in Manhattan and Silicon Valley, that households hit the upper level of sustainable housing expenses (the left section of the supply/demand graph above).  At this point, marginal changes in the city’s income and housing consumption will become a product of migrations.  Higher income households move into the city, bidding up rents so that some lower income household is forced to leave.  So, as incomes rise further, rent/income remains the same, but the new tenants have higher incomes and pay higher rents.  In these cities, median households may even see incomes after rent expenses falling even as gross incomes rise because the migration patterns will be pushing them further down the distribution of the city’s household incomes in a ratcheting up of costs until they become the next family that leaves.  In these cities, real estate owners may be capturing all of the median household’s new income plus more.
Of course, in many cases the household is the real estate owner, so the complete picture frequently includes families scraping by on a cash flow basis in California until they sell their home and move to a less expensive location where they are wealthy relative to the locals.”

I highly recommend that you read the entire post.

Timber! Framing lumber prices are still way down (along with pretty much the entire commodity space).

Getting Smarter: The US smart home market is struggling and finds itself in the chasm between early adoption and mass market acceptance.  However, it may be about to take off.


Shut Down: We have been saying for months that daily fantasy leagues are gambling and arguably somewhat of a scam. I guess that NY attorney General Eric Schneiderman is a regular Landmark Links reader because he agrees and ordered that the two biggest sites stop taking bets from citizens of New York.

The Perfectionist: Odell Beckham Jr is an amazing talent. He’s also a workaholic who is trying to become ambidextrous by using his left hand to do almost everything.

And Now You Know: Here’s the story of why Californians put “The” in front of their freeways.

High Energy: Despite plunging oil prices (or maybe because of them), the energy sector has literally never been this hot or this innovative since man discovered fire.


Weed War: Water shortages, brought about by California’s drought has escalated tensions between Native American tribes and pot growers in Humboldt County into an outright war.

Water Water Everywhere….: Desalination could provide a partial solution to California’s drought but it’s really, really expensive.

Chart of the Day


Holy Sh%t: Meet the Singaporean pastor convicted on fraud charges for using $36 million of church funds to promote his wife’s rap career.

Hero: Some amazing person just came up with an app that blocks all Kardashian related content on your browser.  I would like to nominate him for a Nobel Prize.

That Stinks: The bizarre story of how sheep farts forced the emergency landing of a Singapore Airlines 747.

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Landmark Links November 13th – Retail Therapy

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