Lead Story: Billionaire investor Carl Icahn has made a big bet against mall owners by buying credit default swaps based on the CMBX 6 index that has substantial exposure to mall debt. Icahn has a pretty incredible track record – thus the title self-made billionaire. However, there is a catch: while the macro thesis of the destruction of malls seems obvious, actually generating a profit from it has proven to be incredibly difficult.
Take for example Alder Hill Management, LP, a hedge fund whose founder, Eric Yip used to work for Icahn. Yip and Alder Hill had raised $300MM and bet heavily against CMBX 6 but wound down the trade earlier this year and began to wind down the hedge fund as well when the index rallied hard after bottoming out in late 2018, benefiting from lower interest rates. In fact Icahn has apparently suffered early losses as well.
This is a complicated bet since it relies not only on the macro thesis being correct but also on the direction of interest rates and CMBS lenders’ willingness to restructuring loans in order to kick the can down the road on defaults. Neither the restructuring appetite of lenders nor the direction of interest rates are easy to forecast, meaning that a seemingly can’t-miss trade can quickly become a money-losing albatross. In other words, timing and luck are just as important as getting the macro thesis correct when it comes to this sort of bet.
Economy
Sink Hole: America’s public-sector pension schemes are trillions of dollars short on funding and the problem is getting worse despite quickly growing contribution rates.
Holding Pattern: The view that inequality is playing a larger role than previously thought is gaining ground. The theory is that this is occurring since wealthy people, flush with cash have a high demand for safe places to park their capital, resulting in yields that are pushed lower than they otherwise would be at more historical wealth distribution levels.
Same Old Story? Data shows that the recent yield curve inversion (and subsequent un-inversion) was not unusual by historical standards.
Commercial
Human Cost: WeWork just laid off 2,400 people out of its 12,500 workforce. At lease Adam Neumann is sitting on a beach somewhere counting his SoftBank billions. See Also: WeWork bonds have hit a new low and are now trading at 71 cents on the dollar, pushing yields north of 16% after its net loss more than doubled in the 3rd quarter YOY.
Don’t Call It A Comeback: After losing tenants to revitalized downtowns over the last decade, developers are adding modern amenities to suburban office campuses, spurring a renaissance that is benefiting from a workforce that is moving back to the burbs.
Residential
Grounded: Near record-high lot prices are one of the biggest impediment to building affordable housing today. However, cost and fee inflation mean that its still difficult for land developers to turn a profit, even with elevated prices.
Confidence Game: Home builder confidence remained strong in November as builders continue to view sales conditions positively.
Priced Out: Its not just entry level homes that are scarce. The supply of rental homes is shrinking as well, despite huge growth in the single-family rental sector during the foreclosure crisis, and that continues to push rent prices higher, particularly on the lower end of the market.
Imagine That: Knock me over with a feather, evictions and huge rent hikes are surging before California’s new rent control law is set to begin. If only someone could have predicted that rent control would have severe negative consequences.
Profiles
Potentially Huge: New Jersey has demanded that Uber pay $649MM for years of unpaid employment taxes for its drivers, arguing that the ride-hailing company has misclassified the workers as independent contractors and not as employees. If this gains traction with other states, kiss the gig economy goodnight.
Do What You Love: A University of Miami professor who wrote a book about drug crime and money laundering was arrested and charged with laundering money from Venezuela because Florida.
Just Deserts: Softbank is suffering as massive stakes in Uber and WeWork plunge in value. There is an argument that this is well-deserved due to the toxic nature of the company’s core investment philosophy: creating monopolies by pouring so much money into a company that it leaves its competitors in the dust and consumers with no choices.
Chart of the Day
How low can you go?
Source: Visual Capitalist
WTF
By All Means: As Twitter, Facebook and YouTube shut down accounts spreading China’s narrative about the Hong Kong protests overseas, resourceful pro-China bloggers are putting their videos on another extremely popular platform: the world’s biggest porn site, Pornhub.
Perfect Hiding Place: A 380 lb man was arrested for possession of a hypodermic needle containing methamphetamine. When he was searched upon being admitted to jail, police found a bag of meth hidden in his belly button because Florida.
Love Triangle: A man helped his daughter murder her boyfriend, then proceeded to marry her because Kentucky.
Landmark Links – A candid look at the economy, real estate, and other things sometimes related.
Visit us at Landmarkcapitaladvisors.com
landmarkcapitaladvisors.wordpress.com 