March 16, 2017

The Onetime Kings Of Impossible Prices

A report from Bloomberg. “Apartment rents in cities such as New York and San Francisco will need to fall as much as 15 percent for a glut of high-end developments to be absorbed, according to billionaire real estate investor Richard LeFrak. New York landlords are already feeling the pinch as renters take advantage of a flood of new buildings to negotiate concessions and price cuts. Rents fell last month for Manhattan apartments of all sizes, the first across-the-board decline in at least four years, as property owners compromised to keep units from going empty. ‘We built a lot of new product at the high end, anticipating incomes that don’t exist in the market now,’ said LeFrak, chief executive officer of the LeFrak Organization.”

From SF Curbed in California. “For the first time this year, San Francisco no longer has America’s most expensive median rent, at least by one measure. The site RENTCafe reports that San Francisco has slipped back down to the number two spot in their rankings, behind onetime king of impossible home prices, New York City. The really significant takeaway from this is that the city was neither the most expensive city in the report nor in the US.”

From Insider Louisville in Kentucky. “An out-of-town developer may back out of plans to build a $56 million luxury apartment complex in NuLu, according to the developer’s attorney, Jeffrey McKenzie, of Bingham Greenebaum Doll. ‘Flournoy Cos. is frankly not able to go forward,’ McKenzie said when addressing members of the Louisville Metro Council’s Labor and Economic Development Committee. The council was set to vote on a tax incentive agreement between the city and Flournoy Cos. but instead tabled it.”

“Flournoy Cos. previously agreed to rent 18 of its one-bedroom apartments at $947 per month, whereas a regular one-bedroom unit would go for $1,300 a month. However, when McKenzie addressed the council committee, he stated that the project can’t move forward if Flournoy Cos. is required to have the 18 cheaper apartments. Either that requirement would need to be eliminated, or the property owner must agree to sell the properties on Main and Clay streets at a lower price.”

“Without tax incentives, McKenzie asserted that Louisville would not be able to pull the large luxury apartment developments that were in development or under construction currently. Financing for apartment projects is tightening and costs are rising, which could cool the multifamily residential market.”

From The State in South Carolina. “Copper Beech Townhomes, one of the first in the current wave of private student housing complexes in Columbia, was sold at auction last week in a foreclosure sale, Richland County court officials said. The 1,002-bedroom complex was purchased by Southern Drive LLC for $22 million, according to Joseph P. Strickland, Richland County Master in Equity. Southern Drive, a Delaware-based company, sued the previous owners, Copper Beech Townhome Communities Twenty-Five LLC, for nonpayment, court records show.”

“The complex, which opened in 2007, will remain open and rebrand itself, according to its new management company, Southern Management Partners. Designed to appeal to college students, the complex is spacious and features a large swimming pool.”

“But occupancy rates have struggled at the complex as new student housing offerings closer to the city have continued to be erected since 2007. Last year in August, Copper Beech had a 40 percent occupancy rate, management officials there said. The previous year, in 2015, the occupancy rate was 100 percent, the company reported. Several housing developments aimed at college and young professionals have gone up in town nearer to USC and the downtown since 2007, with construction continuing.”

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Comment by Ben Jones
2017-03-16 14:55:56

‘one of the first in the current wave of private student housing complexes in Columbia, was sold at auction last week in a foreclosure sale’

It begins.

‘Last year in August, Copper Beech had a 40 percent occupancy rate, management officials there said. The previous year, in 2015, the occupancy rate was 100 percent, the company reported. Several housing developments aimed at college and young professionals have gone up in town nearer to USC and the downtown since 2007, with construction continuing’

See how fast it went down?

Comment by azdude
2017-03-16 15:05:00

“Man who gets kicked in testicles left holding the bag”

Comment by Ben Jones
2017-03-16 15:16:26

600 empty beds is a lot. From 100% occupied to foreclosure in one year. Of course, as the apartment guy said recently, some of these property managers lie to the lenders.

Comment by Ben Jones
2017-03-16 16:18:26

Or were you talking about your Gopro stock?

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Comment by azdude
2017-03-16 16:36:40

i dont own any camera on a stick bs stock.

Comment by Ben Jones
2017-03-16 16:53:16

Come on, share your skate boarding videos with us.

Comment by butters
2017-03-16 17:12:49

Or tennis pictures. Or is that a different dude?

Comment by palmetto
2017-03-16 17:33:40

Different dude. az’s OK. He just has frustrations with the rigged casino. I dunno why Ben gives him such a hard time, really.

Comment by Ben Jones
2017-03-16 17:44:02

That’s Natty Ice Dude. For some reason he keeps trying to spam me with some malt liquor he likes. I’d bet 5 bucks there’s video of him out there passed out in the back of an uber with stuff written on his face with a sharpie.


Comment by Race Bannon
2017-03-16 17:50:46

Damn…. he isn’t even old enough to shave.


Comment by palmetto
2017-03-16 17:59:55

Hey, that looks like the CEO of Reddit, Steve Huffman.×3_992.jpg

Good lord, these are the guys who control tech in the US.

Comment by Avg Joe
2017-03-16 19:11:59

Pffft. No they aren’t.

Comment by phony scandals
2017-03-17 08:36:51

Who do?

Comment by Raymond K Hessel
Comment by Senior Housing Analyst
2017-03-16 14:59:54

Boulder, CO Housing Prices Crater 6% YoY

Comment by Ben Jones
2017-03-16 15:00:38

‘Office tenants along Boston’s Route 128 corridor are increasingly looking to fill some of their unused space on the sublease market, a trend that was an indicator of the last two downturns in the region’s office market.’

‘Greater Boston’s office sublease availability has risen 17% in the last two years, according to a report by NAI Hunneman. While this is not cause for panic, that it is heavily concentrated in suburban markets is drawing the attention of researchers. Since the end of 2014, sublease availability in the Route 128 submarket has risen by 87%. Of the 4M SF of subleases available in greater Boston today, 22% of it is in the Route 128 West submarket.’

“Most people consider a rising availability like this to be a leading indicator of a soft office market,” NAI Hunneman director of research Liz Berthelette said. “The increase in the sublease market is slightly concerning.”

‘After the Food and Drug Administration rejected Chiasma’s experimental drug to treat a pituitary gland growth disorder, the biotech company laid off most of its workforce at its 24K SF facility. Burlington web hosting company Endurance acquired Waltham-based Constant Contact for $1B last year, and the online marketing company quickly laid off 15% of its workforce at its 130K SF HQ. It is now subleasing 83K SF of the facility.’

“For a while, Constant Contact was expanding so much, because they felt they were unstoppable,” Colliers International assistant vice president Jason Rexinis said.’

‘Direct vacancies in Waltham were at 9.6% at the end of Q4 2016, but total vacancies were at 16.5%, up from 15.2% in 2015. Colliers director of research Aaron Jodka said the last time so much sublease space was on the market was in 2003 in the wake of the dot-com collapse.’

Oh dear…

Comment by taxpayer
2017-03-17 07:26:05

are CRE vacancy numbers total BS?

Comment by Rental Watch
2017-03-17 12:59:39

They can be in some markets, in some parts of market cycles.

Vacancy is usually made up of direct and sublease space.

Space directly available from landlords is generally pretty good data (most landlords will gladly advertise what space they have available).

Sublease space is less good data (some tenants would prefer not to advertise openly that they was to sublease some of their space).

Additionally, there is a category of “potential sublease” space that doesn’t show up at all. This is space that is leased to a tenant, but not yet occupied by employees, nor available for sublease (officially, or unofficially).

In the SF Bay Area, it’s this “potential sublease” space that is the most worrying factor (if you own office in the area). And this category doesn’t show up anywhere in the official data.

Comment by Ben Jones
2017-03-16 15:04:59

‘Three years into an apartment building boom, Charlotte’s mix of rental units has become extraordinarily out of whack with national averages.’

‘Nearly half of all the apartments in Charlotte are now premium priced — either luxury or market-rate, according to figures from the industry group CoStar. Both of those categories are out of reach for families close to the city’s median income.’

‘The numbers objectively raise questions about how and where Charlotte will serve families that don’t make premium incomes. Even Clay Grubb, the CEO of Charlotte apartment developer Grubb Properties, said Wednesday that Charlotte was heading toward a “crisis” in housing affordability.’

The crisis is here and it’s coming for you Clay. Better get some boxes cuz when you default, it’s time to hit the sidewalk!

Comment by azdude
2017-03-16 15:35:19

why is yellen raising rates into a deteriorating economy?

lather, rinse , repeat

All we need is a catalyst.

Comment by Race Bannon
2017-03-16 15:55:22

The economy deteriorated long ago. Time to ratchet rates up to normal levels.

Comment by palmetto
2017-03-16 16:52:05

Yer killin’ it on ZH. I don’t think they know how to take it.

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Comment by Race Bannon
Comment by Ol'Bubba
2017-03-16 18:00:11

There is a lot of multifamily product coming out of the ground here in Charlotte. The name Grubb rang a bell and this came up in a Google Search. Grubb Properties is the developer of two 24-storey apartment towers in uptown Charlotte. Here’s the link to a Charlotte Observer article published last June about the topping out of the second tower:

from the article (published 6/7/2016):
“Charlotte’s apartment boom hasn’t shown any signs of slowing down. The latest numbers from Charlotte-based apartment monitoring firm Real Data show more than 12,700 units under construction, with 13,425 more proposed or planned to be built in the coming years. Other high-rise projects under construction uptown include the Ascent tower by Greystar (33 stories) and the Mint Museum tower (43 stories).”

Comment by Ol'Bubba
2017-03-16 18:19:16

And here’s a link to an article published today (3/16/2017) by the same reporter, with his article about a recent CCIM Meeting in Charlotte:

“This time last year, you would have been forgiven if you confused a Charlotte real estate forecast with a baseball game: It seemed like every developer and broker was trying to guess which “inning” the boom was in, and how close we were to the bottom of the ninth.

But at the annual CCIM real estate forecast panel Wednesday, no one was talking innings. Instead, buoyant optimism seemed to have replaced last year’s fretting about whether developers are building too many apartments or if there’s a glut of new office space that’s set to swamp the market. There was near-universal agreement that Charlotte’s real estate boom will continue for the foreseeable future.”

Read more here:

Comment by Ben Jones
2017-03-16 19:42:56

‘near-universal agreement that Charlotte’s real estate boom will continue’

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Comment by In Colorado
2017-03-17 07:14:13

Followed soon by “No one saw it coming”

Comment by Albuquerquedan
2017-03-17 08:49:47
Comment by Rental Watch
2017-03-17 13:02:27

I really don’t understand what they mean when they say “market-rate” is “premium priced”.

In order to not be “premium priced” do they think units need to be Section 8 housing, rent controlled, or “affordable” housing (tax credit schemes, etc.)?

Comment by Albuquerquedan
2017-03-16 15:52:30

It looks like if you buy in many of the large cities, the HOA fees are almost like renting:

Comment by azdude
2017-03-16 16:33:43

when did the central banks turn into stock market managers?

Comment by butters
2017-03-16 17:14:30

The day Ray-gun appointed Greenstain.

Comment by Albuquerquedan
2017-03-17 07:56:30

Greenspan was not a cheerleader for the stock market until Clinton took over, he actually tightened under Bush I probably costing him reelection.

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Comment by Albuquerquedan
2017-03-17 08:13:23

So the question is: why did Greenspan keep interest rates low under Clinton despite inflation but not under Bush?

Comment by Albuquerquedan
2017-03-17 08:29:58

Interestingly, if you look at the numbers the last year of Carter GDP down .2%, unemployment at 7.2%, and inflation at 12.5%, the last year of Reagan, GDP up 4.2%, unemployment at 5.3% and inflation all the way down to 4.4%. Yet people try to blame him instead of the Globalists that followed him and the Federal Reserve which clearly allowed bubbles to form to hide the mass exodus of manufacturing jobs overseas after him due to the globalists.

Comment by MightyMike
2017-03-17 08:53:21

That page shows that rate were kept low despite inflation in 1996 when inflation was 3.3%. Then it shows that inflation fell to 1.7% in 1997. He must have knows that the inflation was transitory.

Comment by MightyMike
2017-03-17 08:56:00

mass exodus of manufacturing jobs overseas after him due to the globalists

So the globalists must be the corporate executives doing whatever is possible to maximize profits.

Comment by Albuquerquedan
2017-03-17 09:38:58

So the globalists must be the corporate executives doing whatever is possible to maximize profits

Yes, Fortune 500 executives have always been globalists. However, when the old unions controlled the Democratic party, immigration was constrained to avoid competition with native workers and tariffs and other constraints prevented unfair competition with American goods. Bill Clinton actually accomplished what Bush I could not. He passed NAFTA and removed any constraints on the importation of Chinese goods. He persuaded the unions representing private workers to effectively commit collective suicide. Only the government unions prospered under him.

Comment by MightyMike
2017-03-17 10:03:48

In other words, the unions built the large middle class that arose in the 50s and 60s. The decline of the unions that started in the 70s then led to the decline of the middle class, a phenomenon also described as the rise in inequality. The unions had two important roles during their period of great influence - one economic and the other political.

Comment by redmondjp
2017-03-17 10:07:52

Reagan was a globalist. Massive job outsourcing and American manufacturing plant closures happened during his tenure. And he took down the solar panels that Carter had put up on the WH.

Comment by redmondjp
2017-03-17 10:09:24

But in the end, Mike, the unions were powerless to stop the forces of globalism. All they could do was to preserve high wages for the old guard until they retired, while creating a two-tiered wage structure so the newbies got hosed (but at least had jobs).

Comment by Albuquerquedan
2017-03-17 10:18:13

And he took down the solar panels that Carter had put up on the WH.

That makes him a globalist? That is absurd.

Comment by Albuquerquedan
2017-03-17 10:20:10

Reagan took over an economy with both high inflation and high unemployment, a far more difficult challenge than Obama faced. He only had to deal with unemployment. Despite this he created far more growth in the GDP.

Comment by Albuquerquedan
2017-03-17 10:41:05

Reagan created far more growth in the GDP, to be clear.

Comment by oxide
2017-03-17 11:52:31

the unions built the large middle class that arose in the 50s and 60s. The decline of the unions that started in the 70s then led to the decline of the middle class,

Sorry, Mikey, it’s the *opposite.* Unions didn’t cause the prosperity; they are a symptom of properity. As a-dan says, in the 50’s and 60’s, there was little competition for the native the labor force, so a union forming and striking was a real threat. Not anymore.

And in turn, the decline of unions was a symptom of a decline in the middle class, not the cause. The middle class was destroyed by Chindia and illegals even before unions declined. When Unions tried to strike, it was too late. Companies had already outsourced or scabbed to illegals, leaving the union workers picketing outside empty factories. Unions faded away, and the workers voted for Trump.

Comment by palmetto
2017-03-16 16:39:10

“New York City residents paid the highest HOA fees ($571 per month), followed by those in Long Island ($498) and San Francisco ($463). As a percentage of housing expenses, however, residents of Tampa got hit the hardest, with HOA fees making up nearly half of their monthly costs.”

There is is, Tampa! We’re number one! These HOAs are just the worst. Horrible. Another layer of government and just as irresponsible. The only HOA I ever lived in as a homeowner, I watched the “board” make a special assessment to repair the pool area (badly needed), only to have them give a 50% deposit to the contractor, who just walked off the with money. No one took responsibility, they couldn’t be bothered to keep him on a short leash. That was the end of that, then they got someone’s cousin to come in and cut rate the work. Disaster.

Comment by SuzeB
2017-03-17 07:15:05

As a woman who could now qualify for a lovely “55+ community” (yeah, it creeps up on you, enjoy your youth!) and considering where to live out my golden years, HOA fees and the associated HOA horror stories strike fear in my heart. Being single and a renter most of my life, I don’t want to deal with the maintenance of a single family house yet I also don’t want to deal with the hassles of an HOA.

I know of one condo building (and it’s not 55+) in Brookline MA where the fees are at least $600 a month, perhaps more. There is an outdoor pool *but* you can only use it when the lifeguard is there. The pool often closes at 6:00PM during the summer months when it is open and if no lifeguard available, no pool! I’d be livid if I was a resident paying those outrageous fees and could not use the pool at my leisure, or on a 90+ degree day in July at 8:00PM.

Guess renting isn’t so bad after all, despite being considered a second class (not yet senior) citizen. ;-)

Comment by Bellinghouse
2017-03-17 09:27:23

We just sold our condo (technically it is a PUD) in Palm Springs. The bickering among neighbors and issues with owners renting out their units was just too much to deal with. To the point owners were calling the police! I know being on the HOA Board meant I had to deal with matters on an almost daily basis, but not being on the Board exposes you to liability of potential bad decisions / outcomes.

I am also in my late 50’s and have owned a number of single family homes and condos (still own two SF homes). Yes, you have to maintain homes and issues come up, but the nice thing is the solutions are always in your control. Try and find a newer single family home — many communities are designed with low maintenance in mind.

Comment by oxide
2017-03-17 10:25:17

The hard part is finding a “newer” home that’s *not* in an HOA with a PUD. Only the older homes are controlled by local gov these days.

SuzeB, depending on what you want, you may be better off finding semi-rural land near a small college town and building a small pre-fab on it, OR buying a tear-down small town and putting up a pre-fab on the lot. It will be a newer home, low population density probably no HOA, and you can hire some local guy to maintain the lawn and house. I don’t know your money situation, but you could probably do the whole shebang for under $150K.

And $600/month for an outdoor pool, in MA? That’s outrageous. It must be closed for half the year.

Comment by Race Bannon
2017-03-17 10:37:54

Hey Donk.

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Comment by oxide
2017-03-17 10:53:04

Hi Hon.

I almost posted a link to the pre-fabs from Connecticut Valley Homes, because I know you love them so much. But their smallest home is ~1100 sq ft. Suze B might want something smaller, to cut down on housework.

Comment by Race Bannon
2017-03-17 12:03:31

Data Donk…. Stick with the data

Falls Church County, VA Housing Prices Crater 10% YoY

Comment by SuzeB
2017-03-17 15:24:44

Thanks, I have been a lifelong saver so I’m financially stable (which will come in handy if I stay with my nice, funny and kind yet destitute boyfriend). Yet, in this town, having a million (including real estate) is no big deal, it’s pretty much average. The only reason I have savings is because I chose to live way beneath my means for my entire life as I was born with a cheap stainless steel spoon in my mouth, and knew I was not cut out for the rat race or corporate life. I have been self-employed for 23 years.

That tear-down/building sounds like a great idea but honestly, probably not something I would take on. Someone else would have to make it happen. I will admit, I have some talents but when it comes to real estate, I’m lazy and feel inept - not to mention somewhat decrepit. A young 55 with a bum right shoulder, oh well. I would like to retire early but all signs point to 67, if not 70, to start collecting.

Also, with advancing age and decrepitude, I like the idea of being near decent hospitals although college towns in New England are often near decent medical centers. Also considering warmer locales….hmm…lots to ponder.

Oh, and the $600 condo fee may include heat, and other things like snow removal, insurance, ground maintenance, etc.

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Comment by MWR
2017-03-16 16:47:21

A friend of mine pays just over $600 a month in HOA fees in S. FL and claims it is a great deal and one of the lowest HOA charges around.

Almost like rent on a 2 bedroom in parts of SE NC.

Comment by palmetto
2017-03-16 17:38:40

Can you rent a 2 BR for $600 in SE NC? More to the point, would you want to?

Comment by Ol'Bubba
2017-03-16 18:07:25

If you’re making about $25k to $30k a year, $600 a month for an apartment pencils out at 25% of your gross income. Two full time jobs at $7.50 an hour gets you to a household income of $30k.

If you’re 20 years old and can get a room mate, that six bills a month rent is do-able and it might be something you would want to do.

Comment by Raymond K Hessel
2017-03-16 18:13:56

I can always become a gigolo, but the rest of you saps are outta luck….

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Comment by palmetto
2017-03-16 18:30:18

What sort of neighborhood does $600 a month get? Modest but relatively safe, or slum?

Seriously, that’s not a bad rent for a 2BR these days if it’s not slum.

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Comment by Ol'Bubba
2017-03-16 19:45:11

I guess the answer to your question, Palmetto, is that it varies from market to market. In this day and age, my guess is that a $600 rent will put you in a less than ideal neighborhood, no matter where you live.

Comment by palmetto
2017-03-17 06:48:27

I was asking about the SE NC “parts” that MWR mentioned. Wondering what parts they were referring to.

Comment by oxide
2017-03-17 10:48:41

palmetto, I looked up 2-bed units at apartments dot com for Fayetteville NC, which is in SE NC. There were over 200 apt units and 100+ houses available for under $700/month, including several near Fort Bragg. And they were scattered all over Fayetteville; they can’t all be bad neighborhoods. I suspect you’d find the same kind of scatter in hundreds of smaller cities (Oil Cities?) all over the county.

Comment by Carl Morris
2017-03-17 11:21:32

Interesting. Side question…anybody else here ever live in a cheap apartment close to an Army post…where a combat division is headquartered? During deployments?

It’s not exactly a bad neighborhood in the classic sense…but I wouldn’t call it a good one. It’s a different experience.

Comment by taxpayer
2017-03-17 08:21:01

SE NC has cool beach areas
Southport, Wrightsville

grey poupon

Comment by Race Bannon
2017-03-16 18:22:04

Myrtle Grove(beach town), NC Housing Prices Crater 6% YoY

Comment by Senior Housing Analyst
2017-03-16 17:32:52

Weston, CT Housing Prices Crater 8% YoY

Comment by Raymond K Hessel
2017-03-16 18:02:29

Update to the MSM’s “Everything is Awesome!” narrative: workers are quitting their jobs at a rate that matches the (mythical) “recovery” high. Here’s an alternative explanation: as greedy CEOs reduce headcount to goose “shareholder value,” overstressed employees forced to pick up departed colleagues’ workloads while watching wages, benefits, and purchasing power stagnate or drop, are saying Eff it, this ain’t worth it, and are punching out.

Comment by Carl Morris
2017-03-17 10:16:34

I saw that. While lots of people want to do that I think most can’t unless they have something else to go to. Few have enough in the stock market to decide to retire early. So I think it probably is legitimately good news in that segment of the employment market. For now.

Comment by Raymond K Hessel
2017-03-16 18:08:13

Quotas on mortgages? Seems like a typical genius central planner “solution” for a problem they themselves created.

Comment by Raymond K Hessel
2017-03-17 04:35:13

How cool would it be if Trump went “full Andrew Jackson” on the shysters at the Fed?

Comment by Albuquerquedan
2017-03-17 07:09:59

Speaking of judges, maybe if illegals did not commit so much crime, despite the MSM saying they have a low crime rate, a courthouse would not be such a target rich environment for ICE agents:

Comment by In Colorado
2017-03-17 12:02:34

All of this just goes to show how much power the Deep State truly wields.

Comment by Carl Morris
2017-03-17 10:18:06

How cool would it be if Trump went “full Andrew Jackson” on the shysters at the Fed?

We can dream. I’m not a fan of Trump but at that point I would be.

Comment by Raymond K Hessel
Comment by Raymond K Hessel
2017-03-17 04:41:09

Oh dear. Are Chinese “tech giants” burning the furniture to stay afloat?

Comment by Albuquerquedan
2017-03-17 07:18:46
Comment by azdude
2017-03-17 04:55:15

Is master yellen gonna spoil the stock market rally on trumps watch?

I’m sure all the insiders know the game plan.

How many years has it been since CAT had growing sales?

This is a bogus recovery.Look at all the retailers that are a sinking ship.

No, its not because people are shopping online.

Comment by phony scandals
2017-03-17 06:14:11

Erin go Bragh

Comment by ZH
2017-03-17 06:38:22

“This Is Not The Reaction The Fed Wanted”: Goldman Warns Yellen Has Lost Control Of The Market

Comment by aNYCdj
2017-03-17 06:50:02

The world’s biggest financial bubble just popped.

Regular readers know we’re talking about the bond market. This is where companies and the government borrow money. It’s about twice as big as the stock market.

Comment by rms
2017-03-17 07:28:51

“Inflation is rising at the fastest rate in years. Inflation measures how fast prices for everyday goods rise. A high inflation rate hurts the common man. It makes everything from rent to groceries more expensive. It also chips away at bond returns.”

Except prices are not being driven by wage increases… inflation of yore.

Comment by rms
2017-03-17 07:36:51

Maybe PBear is/was right about a return to the seventies.

Comment by In Colorado
2017-03-17 07:17:35

“Trump’s budget would hit tens of thousands of federal workers, experts say”

Just tens of thousands? Much, much smaller private sector employers downsize that many people. I was hoping the number would be in the hundreds of thousands.

Comment by taxpayer
2017-03-17 07:32:05

watch RINOs protect the non essentials

better get on,fax fly in etc

Comment by aNYCdj
2017-03-17 07:44:17

a little ot but still amazing

LG’s amazing W7 ultrathin OLED is wall art that happens to be a TV

Comment by Albuquerquedan
2017-03-17 10:38:10

Oil drilling rigs figure came out about a half hour ago. I think that it is not good news for West Texas. In the Permian basin, the rapid rise in rigs came to a screeching halt. Count actually dropped a rig. As I predicted a few weeks ago, Oklahoma had a large increase but that will not last too long. North Dakota had a decent increase which I tie to the decision by the Trump administration to allow the pipeline to go forward which does reduce transportation costs. However, that play is virtually spent at these prices. All and all it shows that high grading is running out of steam, may have increased production for about six months or so, but then production increases will end and OPEC will be back in the driving seat.

Comment by Rental Watch
2017-03-17 13:14:05

It sounds like you assume the drop in rig count is because there are not more spots to drill profitably at $50 oil?

What if the rig count drop was simply because people are worried about too much oil driving the price down again? That seems logical in light of recent inventory and price moves.

IMHO, it’s the latter…OPEC won’t be able to drive prices the way they have in the past. They won’t be back in the driver’s seat for years…if ever.

Comment by cactus
2017-03-17 12:14:42

Old news I guess ?

Apache’s recent oil find highlights what could be a new phase in fracking. To date, fracking in the U.S. had really been all about taking explored basins and drilling new wells to get at previously untapped resources. That strategy worked well when oil prices were more than $80 a barrel. At today’s prices though, drilling the old style rigs in mostly depleted fields to get at residual layers of black gold is a money losing strategy. Apache’s find shows that money can be made by taking risks and looking for major new finds in areas that had been passed over previously.

Apache Corporation has struck oil in a region that no one would have expected. The believed to be clay-ridden region of the Permian Basin surprisingly contains at least $8 billion in oil, and there could be more. For years geologists have explored and drilled down to find limited resources and an abundance of clay.

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