Lead Story…. China’s financial markets are (once again) in chaos but California, which is very intertwined with China is booming. The impact of the Chinese debacle will be felt very differently by various segments of the California economy. For example, our port business will likely remain strong since exports to China only amount to 1% of US GDP and imports from China are likely to stay robust. The tech sector might not be so lucky as a lot of the lofty venture capital and analyst growth projections have been based on strong growth from China that will likely slow if the Chinese consumer is weakened. The jury is still out on how this will impact real estate but early indications are that Chinese investment is holding up just fine and could even increase as investors continue to look for safe havens.
Broken Clock: An economist from RBS is predicting financial Armageddon and telling clients to sell everything except for high quality bonds. However, the same guy made the same prediction in 2010. He might be right this time (or he might be wrong) but you would have lost a lot of money if you had taken his advice in 2010.
Race to the Bottom: Earlier this week, we highlighted Morgan Stanley’s call for $20/barrel oil. Not to be outdone, Standard Chartered predicted $10/ barrel oil. Take that, Morgan Stanley. See Also: The Grim Reaper could have a significant chunk of the US oil industry in his sights.
The Long Slog: A new study shows that a shocking 93% of US counties have not fully recovered from the Great Recession, and there are 27 states where not a single county has recovered.
QOTD: “When oil prices first exploded in the early 1970s, and again a few years later, the world economy sank under the weight of rampant inflation and double-digit interest rates. That was a true disaster. It can’t be a worldwide cataclysm both when oil prices soar and when they collapse. It’s far healthier for the world economy to have oil selling near its true market value than at a gigantic premium, due to conflicts, bottlenecks, or OPEC’s monopolistic practices, that brings a gigantic windfall to oil exporters that we all pay for at the gas station and toy store. – Shawn Tully of Fortune Magazine on pervasive pessimism on Wall Street resulting from commodity deflation.
Caution Tape: Many investors that we speak to on a regular basis have grown cautions on multi-family as cap rates and developer spreads continue to fall. While those concerns are very valid, the stagnant home ownership rate could be pointing to strong apartment demand for years to come and the best way to profit from the rising rents that result from that demand is to build more apartments. However, there is an important caveat to note: more development has to happen in the entry and mid-level space. Luxury apartments have received most of the focus of developers through this recovery and they are becoming overbuilt on a nationwide basis.
Leaving Money on the Table: One would think that every homeowner in the US would have refinanced in the past couple of years with mortgage rates as low as they are but they haven’t. Here’s why. By far the most shocking takeaway from this story is that more than 1/3 of the nations home equity is now in California while roughly 12% of the US population lives here. That’s an insane statistic and leads nicely into the story below…..
Ass Backwards: Another day, another well respected author from a mainstream publication acknowledging that we have a massive problem with restrictive zoning in major US cities and that it is a (the?) major driver of wealth inequality.
Identity Crisis: San Francisco’s economy wants to continue to grow. Badly. However, it’s arcane zoning and developent regulations are holding it back. The population of the City of San Francisco has gone up only 10% since 1950, and it’s not even the largest city in the Bay Area anymore (San Jose is). The city is going to need to figure out a way to grow if it wants to maintain it’s dominance as the center of the tech universe.
Unsolicited Advice of the Day: If you are lucky enough to win Powerball this week, start a family office (and please don’t forget about your favorite real estate capital advisor / blogger when he pitches investments to you).
Non-Believers: Silicon Valley lending startups are calling BS on one of the cornerstones of consumer lending: the FICO score. But See: 2016 has started off terribly for the peer-to-peer loan industry.
Chart of the Day
The Chinese Continue to Outstrip All Other Buyers of US Property…and It’s Not Close
Source: National Association of Realtors
Fashion Statement: People are lining up to buy Mexican drug lord El Chapo Guzman’s favorite hideous shirts and stores can’t keep it in stock. Consider this a reminder that no one ever went broke betting against the taste of the American public.
The Making of a Meme: An Instagram doofus posts something about how the Powerball jackpot could make everyone in the US a millionaire and end poverty, because he’s apparently really, really bad at math. Internet users respond by reposting said foolishness blindly and it goes viral. Epic FAIL ensues. 4th grade math teachers everywhere cry.
Feel Good Story of the Day: A shoplifting stripper bit off a store worker’s finger, because Walmart.
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