Landmark Links March 29th – Fast Times at Desert Hot Springs

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Lead Story…. Desert Hot Springs is the Camden, New Jersey of the Coachella Valley (note that I didn’t say Detroit because the Motor City was once quite prosperous whereas Camden has essentially always been a dump).  People end up there by birth or bad circumstances, never by choice.  The city filed for bankruptcy in 2001 and it’s only gotten worse from there as tax revenues and property values plunged causing public services to get cut.  However, this veritable wasteland in the middle of the desert has found a possible stinky green savior: medicinal marijuana.  Back in 2014, the struggling city overwhelmingly passed a measure to permit and tax growing and cultivation facilities within the city limits.  That led to a land rush with wealthy outsiders buying up vast swaths of land and unused commercial buildings to construct and operate grow facilities on.  Those facilities will need workers and those workers will need housing and services in the surrounding areas so there could be a virtuous cycle at play here as long as the city regulates things properly.  Desert Hot Springs has an operating budget of around $14mm today.  The pot business alone is projected to bring in tax revenues of $20mm. Other fine garden spots like Adelanto in the high desert are taking note and following their lead.  It’s one thing when the legalized pot business starts up in already vibrant economies like Denver and Seattle.  It’s completely another when it happens in places that have no economy to speak of.  This will be a fascinating experiment and could mark the first time in human history that anyone willingly went to Desert Hot Springs or Adelanto…..

Economy

Missing the Point: While everyone obsesses about how much the Fed will raise rates this year, they miss the bigger issue: after 8 years of unprecedented monetary stimulus, there is still no real sustainable economic growth.   On top of that, central banks are running on fumes but governments do not seem willing to pick up the slack with fiscal policy.

When the Tide Goes Out: Warren Buffett often says that “you can tell who has been swimming naked when the tide goes out” as an analogy for what happens to those who are over-leveraged and/or under-capitalized when a recession hits.  By that logic, Brazil is currently wearing less than even it’s famed string bikinis.  Brazil was a darling of the world economy during the commodity boom.  However, the bust has laid bare the perils of under-investment and excessive protectionism even as the country approaches it’s turn as the host of this summer’s Olympic Games.

Commercial

How to Spot a Slowdown: Arguably the best way to spot a startup slowdown is to look at the Bay Area commercial real estate market (particularly in the City of San Francisco where startups dominate) and things are starting to look soft.  A new report by Cushman and Wakefield found that commercial subleases are the highest that they have been since 2010, totaling 1.9mm square feet. That’s 46% higher than they were at the end of the third quarter of 2015.  According to Cushman, more than 55% of those looking to shed space are tech companies and there are more that will be looking to do the same in the coming quarters.  This is worth keeping an eye on as it is probably the best barometer out there for Tech.  See Also: Hedge funds are pulling back on investments in venture capital.

Under the Radar: How the puncturing of Swiss bank privacy combined with an obscure foreign tax provision that came into effect in 2016 became a catalyst for investment in US real estate.

Residential

Between a Rock and a Hard Place: It’s becoming increasingly difficult for middle class families to either buy or rent a home in many parts of the country.  For the record, this is what a housing supply crisis looks like and it doesn’t appear to be getting better anytime soon.

Back to the Burbs: Despite a temporary shift in 2011, suburban areas are growing faster than urban ones.

Priced Out: LA Millennials aren’t buying many homes and when they are, their mortgages are larger than almost anywhere else.

Profiles

Social Media FAIL: Microsoft used to be an innovative company back when CDs were an emerging technology.  In an effort to become hip and cutting-edge again, they launched an artificial intelligence experiment on Twitter called “Tay”, a Twitter chat bot that was supposed mimic a teen girl who learned through interactions with Twitter users.  It couldn’t have possibly gone worse.  The assorted cretins and trolls that inhabit the Twittershpere turned the chat bot from an innocent droid posting things like “humans are super cool” to a Hitler loving racist sex robot within 24 hours.  Of course this opened the door for Luddites to denounce any advances in AI and basically accuse Microsoft of trying to launch Skynet through a teen girl account on Twitter.  Microsoft quickly tucked their collective tail between their legs and deleted the account but fortunately screen shots were preserved here.

Tale of Two Ninos: Northern California has enjoyed record rainfall this winter, filling reservoirs and leaving a huge snow-pack.  Southern California?  Not so much.  Now SoCal water agencies are importing a ton of water from their norther counterparts but much of that water is going to farmers.

Streaming Game Changer?  Napster founder (and Facebook investor) Sean Parker is about to launch a streaming service that will make movies available to home consumers immediately when they are released to theaters.  Needless to say, theater companies aren’t thrilled.

Chart of the Day

WTF

Video of the Day: 15 years ago last week, pitcher Randy Johnson threw a pitch that exploded a bird.  The slow motion video of this is still fascinating.

Expensive Mistake: Construction workers in Texas are blaming Google maps after an incorrect address placement led to the wrong house getting torn down.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links March 29th – Fast Times at Desert Hot Springs

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