Landmark Links August 5th – Suicide Pact

Niagra Falls

Lead Story… Vancouver is about to tank it’s residential real estate market after they instituted an astronomical 15% tax on real estate purchases by foreigners.  The worst part may be that existing contracts were not grandfathered in to the new law.  This led to a near-shutdown of the BC land registration system as realtors worked overtime to close before the tax took effect.  Going forward, many of the escrows that didn’t close are likely to fall out as the tax proceeds will exceed released deposits by a substantial amount in some cases.  The impact of such a tax will have massive and chaotic impact as it reverberates through the greater Vancouver market and could become a text book example of the old saying: “be careful what you ask for because you just might get it.” (h/t Darren Fancher) See Also: How Chinese billionaires fueled the epic Vancouver real estate boom.  As a point of reference for just how hot the Vancouver real estate market has been, this picture is worth more than 1,000 words:

Vancouver housing prices

Economy

Aging in Place: Americans over 65 (and increasingly over 75 as well) are staying in the work force well into their retirement years and it’s often about more than just cash flow.  Contra: Aging  US population is hurting both productivity and workforce growth as baby boomers retire.

Bass Ackwards: The best paid CEOs run some of the worst performing companies.

Commercial

Bad Optics: At it’s best, the EB-5 Visa Program, which allows qualified, wealthy foreigners to obtain a green card in exchange for investing $500k or more in a job creating enterprise is a win-win for both investors and developers.  However, the program hasn’t been without controversy and new allegations of developers defrauding foreign investors are not going to help.

Taking Matters Into Their Own Hands: Facebook pledged to build at least 1,500 apartment units for the general public (not including housing for FB employees) in Silicon Valley.  The social media giant is becoming an apartment developer in an attempt to generate support for it’s expansion plans, which call for an adding 6,500 new employees in an already dramatically under-supplied Bay Area market.

Let’s Make a Deal: As new apartments flood the downtown LA market, landlords are increasingly offering rent concessions that were nowhere to be found up to recently.

Residential

Chilled: The Manhattan luxury condo glut has led to an ice-cold land market on the formerly red-hot island.

Water, Water Everywhere…: It’s a seller’s housing market but almost no one is selling primarily because it’s hard to find a replacement house, leading to tight inventory.  See Also: Home ownership is now at a 5-decade low.

Profiles

Crash Proof: How driverless cars could threaten insurers’ earnings.

Lurking in the Shadows: Auction house Sothebys is becoming a player in the shadow banking space.

Podcast of the Day: Malcolm Gladwell’s latest Revisionist History podcast is about the true story behind uncontrolled acceleration accusations leveled against Toyota in 2009 that led to a 10 million car recall and $1 billion fine.  The real story is fascinating – Toyota was a scapegoat – and should be a must-listen for anyone who gets behind the wheel.

Chart of the Day

WTF

Roaming Charges: Japanese Olympic gymnast Kohei Uchimura, the defending gold medalist in the men’s all-around competition got hit with a $5,000 phone bill (which his carrier later agreed to reduce substantially) due to the fact that he: 1) Apparently has a Pokemon Go addiction and 2) Didn’t bother to disable the roaming feature on his cell phone while in Brazil. To make matters worse, he had a 0% chance of actually capturing a Pokemon as the game has not yet been released in Brazil.  That’s a painful hit to the wallet but this also feels like a great endorsement opportunity.

Getting Kids Involved in the Political Process: Mayor Anthony Silva of Stockton, CA was recently arrested and charged with providing alcohol to minors at a youth camp that he runs because, well, Stockton.

You Gonna Smoke That? A man from Orlando Florida was recently arrested when police mistook his Krispy Kreme doughnut for meth.  There’s a great cops and doughnuts joke in there somewhere (h/t Chris Gomez-Ortigoza).

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 5th – Suicide Pact

Landmark Links July 15th – Proceeding with Caution

Squirtle

Last Tuesday, I was sitting in a hospital room with a somewhat-drugged-up Mrs. Links just after baby Hayden was born when I read an article about a new video game that had just been released. That game was just beginning to become a phenomenon like nothing I had ever seen.  I remarked to Mrs. Links that this was going to end up being the tech story of the summer.  She rolled her eyes at me in a painkiller-induced haze and told me that I had to be kidding.  I wasn’t.  If I were smart, I would have dropped everything and bought Nintendo stock.  I’m’ not.  Since then the Pokemon phenomenon has taken on a life of it’s own and not just among kids.  Twenty and thirty somethings are playing the augmented reality game which now has more users than Twitter and more engagement than Facebook.  It’s led to car crashes and muggings but has also helped to boost traffic at zoos and museums and is being utilized as a dating app by some.  I’m not a gamer and I personally find the whole thing rather lame (not for kids – for 30 year olds).  I also haven’t downloaded the app and don’t plan to although it has been a regular topic of conversation at Landmark World Headquarters.  However, there is no denying that that this game is dominating the news cycle and having an economic impact on everything from local businesses to real estate (yes, seriously).  As such, today’s blog has decidedly Pokemon Go theme…..and yes, I acknowledge that makes me almost as nerdy as the 30-somethings crowded onto Santa Monica or Newport Piers in search of imaginary cartoon characters that show up on their phones.

Lead Story… Property values in the US have recovered dramatically since housing bottom, leading to an additional $260 billion in home equity.  However, this hasn’t led to additional borrowing.  According to CNBC, this is why:

During the last housing boom, homeowners used their properties like cash machines, pulling out more equity than the house or the market could support. Arguably, no one wants to see that again, and so far, it is not happening.

“During the mid-2000s, as house prices went up, borrowing went up almost dollar for dollar. In the last few years, when house prices have again been increasing more rapidly than the long-term average, mortgage borrowing has not increased at all. In fact it has decreased,” said Sean Becketti, Freddie Mac’s chief economist.

Much of that may be due to more careful lending. The equity may be there, but lenders are far more strict about letting borrowers pull it out, especially if their incomes don’t support the higher debt.

“We are hoping that people continue to be prudent about cashing out, but part of it is, lenders are more cautious. One of our frustrations at Freddie Mac is we think we’ve set a very prudent credit box, but we find that lenders won’t go all the way out to the edge of our credit box. They are more restrictive than we would allow them to be. They just are super cautious,” added Becketti.

Mortgage refinances will likely rise on lower rates, but the same volatile global economic conditions pushing rates down are making borrowers even more cautious. The cash-out share is not expected to change, as lenders keep standards high and homeowners keep their personal leverage in check.

Economy

Vortex: How the black hole of negative rates is dragging down yields across asset classes and around the globe.  See Also: Germany just sold 10-year bunds at a negative yield.

Ancillary Benefits: How to drive insane amounts of traffic to your local business using Pokemon Go. Contra: Pokemon Go is actually terrible for the economy.  Here’s why.

Commercial

Bargain Shopping: Brexit could lead to foreigners buying up even more of London as UK real estate funds look to sell assets in order to meet redemptions as the pound continues to weaken.

No Moat: WeWork is the largest player in the co-working space, leading to a much scrutinized, sky-high valuation of $16 Billion for a real estate company.  However, the business is growing and, with very few barriers to entry, competitors are popping up everywhere.  I found this excerpt from the WSJ about valuations vs. barriers to entry particularly interesting (highlights are mine):

Some WeWork investors have compared WeWork with taxi-service provider Uber Technologies Inc. and overnight home-rental provider Airbnb Inc., saying WeWork will transform the office-space market.

But Airbnb and Uber enjoy high barriers to competition. The more drivers and hosts in their networks, the harder it is for an upstart to challenge them.

WeWork, by contrast, leases all its office space itself and then rents it out, making it more like a large hotel operator than a network that connects a buyer and seller—and potentially more susceptible to competition.

If the above is true, and scale isn’t as important as barriers to entry, that $16 billion valuation is looking awfully rich.

Residential

Millennials, They’re Just Like You and Me: Realtors marketing to Millennials are driving traffic to their open houses by advertising that Pokemon characters are present in said houses.

Profiles

Deal of the Century: I used to think that George Steinbrenner’s purchase of the Yankees for $8.8MM (now valued at $1.6 billion) or Al Davis’ purchase of 10% of the Raiders for $18,500 (worth around $800MM today) were the best investments in the history of sports. However, the UFC just surpassed both.  This past week, the Fertitta family and Dana White sold UFC for a whopping $4 billion after having bought it for a mere $2MM a mere 15 years ago.

LOL: Leadership at struggling online lender Sofi has long been highly critical of banks. However, a major slump could force the upstart company to become what it despises the most: a bank.

Podcast of the Day: The Big Man Can’t Shoot from Malcolm Gladwell’s Revisionist History series is 35 minutes long and absolutely worth the listen.  It’s about how Wilt Chamberlain (a historically terrible free throw shooter) started shooting his foul shots underhanded, was incredibly successful at it but then stopped because he was embarrassed.  The episode is much more about human behavior than basketball. I found it fascinating.

Chart of the Day

Remember this chart the next time you read an economic report referencing low productivity:

WTF – Pokemon Go Edition

Everybody’s Searching for Something: Searches for Pokemon porn are up 136% since the launch of Pokemon Go on July 6th.  The more that I learn about people, the more I like my dog.

Dragnet: A woman in Queens, NY used the Pokemon Go app to catch her boyfriend cheating on here when she noticed that he caught a Pokemon at his ex’s house.

Attempted Darwin Award: Two men fell off of a cliff in San Diego on Wednesday while trying to catch a Pokemon.  They both lived, despite their best efforts.  I can’t think of a good way to go but, when it’s my time, I don’t want a video game mentioned as the cause in my obituary.  See Also: Three people, at least one of whom was an adult were locked in a cemetery while playing Pokemon.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 15th – Proceeding with Caution