Lead Story….. During the housing bubble, home prices skyrocketed while rents stayed largely stable. This was at least partially due to a large number of people (who should have remained renters) buying homes financed by NINJA loans or other shady products. There was even a movement to get Owner’s Equivalent Rent removed from CPI calculation and replaced by a price index out of concern that inflation was being understated. Today, we are experiencing something different. The Consumer Price Index (CPI) and Producer Price Index (PPI) historically move in lockstep. However, starting in late 2014, the two measures diverged as the Producer Index began to fall while the Consumer Index continued on a slow trajectory upward. In light of the commodity crash, it makes sense that we would see some signs of disinflation with downward pricing pressures across emerging and developed markets. So what’s the variable responsible for the relatively strength of CPI? Soaring rents, of course.
Beyond Worthless: There is a specific type of North Dakota crude oil that now has a negative value. See Also: Parts of Michigan now have gas under $0.80/gallon. California, not so much. In Related News: The big banks are setting aside large reserves for their oil loans that are imploding.
Chugging Along: Alternative energy investment is still going strong despite the oil crash.
Hitting the Wall: Chinese companies are looking to cut headcount as their economy continues to struggle. Unrest is on the rise and protests are becoming more commonplace.
Yield Curve Update: The yield curve is continuing to flatten (as it typically does after a Fed hike). Keep an eye on this measure in the coming months as it’s a strong leading indicator of economic growth or contraction.
Power Play: Saudi Arabia is buying up farmland with senior riparian rights in the drought-parched Southwest US in order to grow crops to send back home and preserve their own dwindling water supply. As expected, this is not going over very well. (h/t David Landes)
Divergence: Both renting and owning are currently expensive in LA. However, two areas with very similar average rents can have very different home prices and vice versa. Looking at the city by neighborhood, broken down by price-to-rent ratio tells you a lot about which neighborhoods are expected to gentrify and which are not.
Game Changer: Home Partners of America’s first securitization could be a glimpse of the future of home buying: rent to own with scale.
Flexible Floorplates: Speaking of game changers, Pardee Homes thinks that they have a house that will turn Millennials into home buyers. It reconfigures easily from roommate living to family living.
2016 Housing Market Predictions: Some thought provoking stuff in here. UCLA economist David Shulman is always a good read.
Return of the Rams Unless you are living under a rock, you’ve probably heard that the Rams are coming back to LA. One of the unique aspects of the deal is that it will require no public financing and the full cost will be borne by owner Stan Kronke. Lets hope that this becomes a trend. See Also: Comic book super-villain Jerry Jones was apparently the central figure in the deal coming together. There is a rumor going around that the LAPD is going to make him an honorary member of the force as a thank you for keeping the Raiders (and their fans) from returning to LA.
Strange Bedfellows: A look inside the increasingly uneasy alliance between Detroit and Silicon Valley.
Winning: Canadian Millennials are faring better than their American brethren. Here’s why.
Chart of the Day
High Rents are causing CPI and PPI to diverge
Hostage Situation: Check out the desperate plea that a passenger wrote to a flight attendant about a flatulence problem on a plane.
A Picture is Worth A Thousand Words: Take a look at the mug shot in this story and ask yourself – “does she look like the type of person that would strip naked and attack diners at a Waffle House?”
Video of the Day: Check out Snoop Dogg narrating a nature video.
Munchies: A large order of tacos was the final nail in the coffin for El Chapo before he was busted.
Common Sense: If you absolutely must steak a python from a pet store, don’t stick it down your pants.
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