May 6, 2018

The Idea Of Supply Slowing Down Is A Fantasy

A report from the Post and Courier in South Carolina. “The Lowcountry kept pace in recording substantial apartment growth but the rapid expansion could result in a higher share of units empty next year, Marcus & Millichap predicts. ‘Another year of elevated apartment deliveries’ — when the communities are actually built — ‘will overtake renter demand and push vacancy higher,’ according to Marcus and & Millichap. The company says that many of the new rentals are large buildings in desirable neighborhoods near downtown Charleston, and ‘apartment operators are expanding the use of concessions to fill available units.’ The surge in new inventory during 2017 overwhelmed the net absorption of 2,400 apartments, raising metro wide vacancy 0.9 percent to 6.1 percent at year end.”

“As new apartments in the downtown, Mount Pleasant and islands leased, class B vacancy here soared 1.6 percent year over year. Rental completions reached the highest annual total since 2000 as 3,460 apartments were finalized in 2017. This was more than double the prior year’s sum. Deliveries will remain heightened as builders have nearly 5,000 rentals underway with completions scheduled into 2019. More than 2,700 of the units are in the downtown/Mount Pleasant/islands submarket. Operators expanded the use of concessions to fill units resulting in reduced rent gains.”

From The Real Deal in New York. “At this point, it seems like concessions at New York rentals set new records almost every month. In January, the number of deals with concessions hit 47.5 percent in Brooklyn and 50.8 percent in Queens, records that lasted all the way until March, when deals with concessions shot up to almost 48 percent in Brooklyn and 63 percent in Queens, according to Douglas Elliman market reports. In Manhattan, the number of new leases with concessions also hit a high in January at 49.3 percent.”

“Although a recent StreetEasy study found that renters are less likely to find price cuts during the summer, when units tend not to stay available for as long, multiple real estate experts said that concessions are too ingrained in the market at this point for typical seasonal trends to make a dent. ‘Some locations may see a modest uptick, a modest decline, or stay flat,’ said Jonathan Miller, CEO of the appraisal firm Miller Samuel and author of the Elliman reports, ‘but I don’t see it as a respite for the need for concessions because every month that goes by, there is more product entering the market.’”

“It is too late to do anything about excess supply at this point, according to Miller. ‘The idea of supply coming in slowing down I think is a fantasy,’ he said. ‘A lot of what’s coming out now was planned a few years ago. It’s not like they can turn off the tap.’”

“In years past, said Eric Benaim, CEO of Modern Spaces, it was generally standard to see developers just offer one month of free rent during the offseason. ‘Now, you’re seeing one month free during the peak season,’ he said, ‘and I’m assuming once the fall comes and the season’s over, you’ll probably see concessions jump up again.’”

From American Banker. “A high-profile foreclosure in New York is highlighting the importance of disciplined underwriting. Preferred Bank in Los Angeles disclosed recently that it has begun foreclosure proceedings on a pair of luxury apartment buildings in Manhattan, a move that will dramatically increase the level of nonperforming assets on its balance sheet. The loans have an outstanding balance of $41.7 million. Those who get too aggressive could be burned when the economic cycle takes the inevitable turn for the worse, bankers and industry observers said.”

“‘If you’re going to compete on commodities — that’s where the cycle starts to turn,’ said Joseph Campanelli, CEO at the $2.1 billion-asset Needham Bank in Massachusetts, adding that it can be tempting to follow the pack in areas such as rate and terms. ‘Well, so-and-so is doing this rate, so let’s match it,’ Campanelli said. ‘Or so-and-so is doing it without recourse, or doing a higher loan-to-value, let’s match it. That’s the slippery slope.’”

“‘Problems can cascade,’ said Jon Winick, CEO of the Chicago advisory firm Clark Street Capital. ‘Trouble with one project drags down another one. … A borrower can be highly coveted and, all of the sudden, no one wants to touch them.’ ‘What else does that developer or real estate group have going on?’ Campanelli said. ‘If they’re overleveraged in other areas, you would have to conclude that, on a global basis, the cash flows aren’t strong enough, even though the individual project looks OK.’”

The Colorado Springs Gazette. “Apartment owners often offer incentives to woo renters when the market slows down. Now, the rapidly growing Colorado Springs-area senior housing sector is following suit amid concerns of oversupply. Four complexes have opened in the Colorado Springs area since September, adding 320 independent-living apartments with meal service, assisted-living and memory-care units to a market that added eight projects between 2011 and 2015. Another four complexes with 316 senior housing units are scheduled to open during the next six months, boosting the area’s senior housing supply by nearly 25 percent in 13 months.”

“Several of the complexes have trimmed rental rates by hundreds of dollars, are waiving or cutting move-in fees or are offering help with moving expenses - all in an effort to remain competitive during the building boom. Angela Spence, executive director of Springs Ranch Memory Care, said her complex is offering an all-inclusive monthly rate that won’t change as long as the resident lives there - instead of a room rate that is subject to annual increases plus additional fees based on the level of care the resident needs. The new structure reduces the monthly cost for residents by up to $1,400. Springs Ranch, which opens May 15, also cut its move-in fee by $1,000.”

“‘We made some adjustments due to changes in the market, which is a lot more supply coming into this market,’ Spence said. ‘The supply of memory care units (designed for residents with Alzheimer’s disease, dementia or other memory impairments) will double over two years.’”

“Beth Mace, senior economist for the National Investment Center for Senior Housing and Care in Annapolis, Md., said owners ‘may face some challenges in leasing up these properties. If history is a guide, it took several years to absorb’ the last round of senior housing projects. The Aspen at Woodland Park, a 21-bed assisted-living center expected to open in late May, cut its rental rates by about one-third ‘due to all of the supply coming onto the market,’ said Angela Waterbury, the facility’s vice president of resident experience.”

From National Real Estate Investor. “Student housing developers are playing it safe and building most of their new projects close to the largest universities. This late in the real estate cycle, developers are no longer focused on the search for undiscovered markets, where few or no developers have gone before. Instead, they are betting on universities where the demand for student housing has been strong and is likely to get stronger.”

“‘Tier one markets continue to attract the most development and are still being targeted by the institutional capital that is pouring into the space,’ says Taylor Gunn, student housing analytics lead for data company MPF Research.”

“The demand for student housing properties around Florida State University has been very strong for a very long time. ‘It is consistent. This is a market that looked good even through the recession,’ says Jamie Swick, senior associate in the national student housing group for real estate services firm Colliers International. Developers plan to open 2,700 new student housing beds in the market for fall 2018, making it the busiest market nationally. However, demand should be strong enough at the university to absorb the new supply, says Swick.”

“Developers have already added 16,500 student housing beds to the Texas A&M University market since 2011, including both on-campus and off-campus housing, according to MPF. That’s significantly more than the increase in enrollment of 12,700 over the same period. The market is struggling to absorb all the new beds and the off-campus inventory is expected to grow by another 6.0 percent this fall.”

“As of March, 51.2 percent of the student housing beds in the market had leased for the fall academic year. That’s 188 basis point ahead of where the pre-leasing rate was at the same time last year. To achieve that improvement, however, properties have dropped rents by an average of 6.7 percent.”

“Developers have already opened thousands of new beds at the University of Texas at Austin—and they will add even more this year and the next. New projects have added 6,181 new beds to the market since 2012, including 1,480 this year. ‘Many markets will see developments activity slow or stop given the volume this year, but a few, such as Florida State and UT Austin, are expected to see a similar development pipeline next year,’ says Gunn.”

“Developers have been opening new properties at a very consistent rate over the past few years, averaging between 44,000 and 48,000 beds each year. This fall will be similar, with developers expected to open another 46,200 beds, according MPF.”

From WRAL in North Carolina. “The likely next chairman of the University of North Carolina system’s Board of Governors, already accused in a lawsuit of pushing North Carolina Central University officials toward a deal with business partners, spent months in 2016 exploring a housing deal near East Carolina University that hinged on a university policy change to help fill apartments.”

“The deal never went through, and Harry Smith, who was on the Board of Governors at the time and is running unopposed this month to become chairman, says he wanted ECU to take advantage of a big opportunity: a foreclosed apartment complex next to the school’s intramural fields. But Smith acknowledged that, had the deal gone forward under one of his proposals, he likely would have been part of the purchasing group. That’s borne out by emails released by the university, which show key leaders expressing concerns about a deal they ultimately rejected.”

“‘Harry first told me about this four to six months ago,’ Rick Niswander, then vice chancellor for administration and finance, wrote to Chancellor Cecil Staton in September 2016. ‘He was thinking that, if he could get it at a steal and have a contract with ECU to fill the beds, he would split the profits with us.’”

“Niswander laid out arguments against the project in a 2016 email released through the open records act: The Greenville apartment market was overbuilt. The complex in question was 3 miles from campus. How could the university tell parents that sophomores have to live on campus, then place them that far away? ‘That is a disaster,’ Niswander wrote. ‘The project is in foreclosure for a reason, not by accident.’”




RSS feed

139 Comments »

Comment by Ben Jones
2018-05-06 07:24:06

‘Well, so-and-so is doing this rate, so let’s match it,’ Campanelli said. ‘Or so-and-so is doing it without recourse, or doing a higher loan-to-value, let’s match it. That’s the slippery slope.’

‘Problems can cascade,’ said Jon Winick, CEO of the Chicago advisory firm Clark Street Capital. ‘Trouble with one project drags down another one. … A borrower can be highly coveted and, all of the sudden, no one wants to touch them.’

‘What else does that developer or real estate group have going on?’ Campanelli said. ‘If they’re overleveraged in other areas, you would have to conclude that, on a global basis, the cash flows aren’t strong enough, even though the individual project looks OK.’

So I posted press release about these foreclosures the other day and I mentioned it hasn’t shown up in the MSM. Now American Bankers reveals other deals may have caused the foreclosures.

‘Problems can cascade’ and as we can see, there are a lot of problems out there. Problems with big, outstanding loans.

Comment by Uncle Warren
2018-05-06 08:27:02

‘Trouble with one project drags down another one. … A borrower can be highly coveted and, all of the sudden, no one wants to touch them.’

A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.

– Mark Twain

 
Comment by Larry Littlefield
2018-05-06 09:37:52

Stupid problems.

The demand for housing and commercial space in New York City is huge.

But all this space is and all these apartments are being held vacant because it can’t be rented at a high enough rent to meet the pro-formas, because no one can afford it.

Drawing down reserves and hoping YOU will be the one to get the sucker seems preferable to locking in a negative carry, and then admitting it to the lender.

It’s like the 1980s, when every home seller in metro NY prices as if they would be selling to the Japanese.

 
Comment by Mafia Blocks
2018-05-06 10:21:48

Big Pine Key, FL Housing Prices Crater 16% YOY As Hedge Funds Liquidate Vacation Properties

https://www.movoto.com/big-pine-key-fl/market-trends/

 
 
Comment by scdave
2018-05-06 07:44:35

Comment by BlueSkye
2018-05-05 10:11:39

Changing colors now are you davey ??

And how is that ?? Because I think buying a home to settling down and in some location to raise your family is just fine…

Poor Blue…Your problem is your past still haunts you Blue so anything outside of your narrow thinking must be a mistake…

Comment by BlueSkye
2018-05-06 12:03:08

Pardon me. I forgot I was talking to a Realtor.

Prices are ridiculous. Never mind that. If you can stretch and make the payments for the next 30 years of your life do it. Just do it. It’s for your unborn children.

No contradiction there.

My past…well there was that Logic 101 class way back when. I believe honest living has its rewards, even if that is narrow thinking.

 
 
Comment by Ben Jones
2018-05-06 07:52:42

‘We made some adjustments due to changes in the market, which is a lot more supply coming into this market,’ Spence said. ‘The supply of memory care units…will double over two years.’

The article mentions someone doing a study that showed a need for more units. Oops! Another 30 or 60 million bucks down the drain.

But you know, these posters talking about a shortage must be feeling kinda foolish by now. Why they may even slink away and stop commenting. Too full of crow?

Comment by OneAgainstMany
2018-05-06 08:55:26

What a small world we live in. I ran Boston marathon a few weeks ago. The weather was terrible and I was getting hypothermia at mile 10. I bailed on the race (1st time I’ve ever not finished) and I erratically walked into the Needham bank employee tent that was set up to cheer for runners. Had an amazing experience with some real quality bankers who basically gave me blankets, hat, socks, and warmed me up. There were many other racers who also bailed.

I ended up getting Mr. Campanelli’s contact info and writing him a thank you email on the behalf of his employees for their kindness towards the freezing marathoners in Natick. It’s hard to love the banking industry, but I am actually kind of rooting for Needham bank because their employees were so awesome.

Comment by oxide
2018-05-07 07:21:44

You were probably talking to low-level employees. It’s the higher-pay execs hiding in their corner offices who bring down the hammer. None of them would be caught DEAD interacting at the customer level at some publicity event. Geesh. :roll:

Comment by OneAgainstMany
2018-05-07 14:00:21

Actually, it was the vice president of the bank I was chatting with, but I chalk this up to an anomaly and generally agree with your premise.

(Comments wont nest below this level)
Comment by tresho
2018-05-07 15:28:25

Was the VP a marathoner also?

 
Comment by OneAgainstMany
2018-05-07 17:19:31

She wasn’t, just a kind lady who happened to let us into the bank to warm up when I bailed on the course. The weather was uncharacteristically cold; it was snowing, raining, and had 20+ mph winds at some points. I was running in a singlet and very short shorts. That was not smart. It was a disaster as far as races go. I stocked up on throw-away clothes the night before at a Goodwill, but I couldn’t stay warm pre-race and it was all downhill from there. But I met some people that I’ll never forget and my RN background probably prevented a few of them from landing on a bed at Mass General or at Tufts.

 
 
 
 
Comment by OneAgainstMany
2018-05-06 09:05:47

I read the article below in The Economist several weeks ago. What stood out to me was that the data massaged by the CBO shows an increase of 50% in household income vs. the CPI showing flatness. So which do you believe, one stat that says things are 50% better 50 years onward or that stagnation has reigned for decades?

I post this just to illustrate how fickle studies, facts, and data can be. One study that shows a supposed need for more assisted living can be countered by another study showing a glut. The assumptions and inputs in these models matter quite a lot, and just because some study says something, doesn’t necessarily mean it is even close. 50% improvement in household income and no improvement over 50 years are diametrically opposed, and both are data that come from official government statistics.

Americans Are Now Richer Than They Were In The 1970s

“Official statistics from the Census Bureau show that this number has remained flat for 40 years. However, a recent analysis by the Congressional Budget Office (CBO) found that it actually rose by 51% between 1979 and 2014. Why are the CBO’s numbers so much cheerier?”

https://www.economist.com/blogs/graphicdetail/2018/03/daily-chart-19

Comment by MacBeth
2018-05-06 09:42:20

Comparing household income in the 1970s to household income today is like comparing oranges to crocodiles.

It’s an implausible comparison based on a faulty premise. It’s why the numbers are all over the place.

Comment by Professor 🐻
2018-05-06 09:59:38

Are you assuming that inflation wasn’t factored into the comparison? Seems unlikely, but I don’t know…

(Comments wont nest below this level)
Comment by oxide
2018-05-07 07:26:28

Husband loses job in the 1970s. What happens? Wifey’s extra cash from her part-time gig at the grocery store gets them through until hubby finds another job in the same city a month later.

Husband loses job in the 2010s. What happens? Wife’s professional career pays some expenses but long term it’s not enough to make the mortgage. 2-3 years of spending retirement money and running up credit cards. Eventual BK, short sale, probable move, homeless in camper.

That’s why there’s no good comparison.

 
Comment by Mafia Blocks
2018-05-07 07:37:15

Hey Donk

 
Comment by OneAgainstMany
2018-05-07 14:01:26

Husband loses job in the 2010s. What happens? Wife’s professional career pays some expenses but long term it’s not enough to make the mortgage. 2-3 years of spending retirement money and running up credit cards. Eventual BK, short sale, probable move, homeless in camper.

See also “Two Income Trap” by senator Elizabeth Warren.

 
 
 
Comment by Ben Jones
2018-05-06 09:55:07

‘The new structure reduces the monthly cost for residents by up to $1,400. Springs Ranch, which opens May 15, also cut its move-in fee by $1,000…‘The supply of memory care units will double over two years.’

These guys are getting whacked before they cut the ribbon. That tells you what you need to know. Oh, and if you read the article this new stuff is…luxury.

Again, why does the media not question how they overshot by so much? I guess after going on about shortages for years it’s hard to admit they were bamboozled.

Comment by Lurker
2018-05-06 11:08:00

“Again, why does the media not question… hard to admit they were bamboozled.”

You’re assuming this latest crop of journalists have the capacity to understand they’ve been bamboozled. Remember the Alabama FB who the WSJ actually imported to NYC cover finance? Obviously a wizard of finance, that one…

(Comments wont nest below this level)
 
Comment by Lurker
2018-05-06 14:09:07

Fogot to add…

“also cut its move-in fee by $1,000″

Wowza. How much was the move-in fee to begin with??? And how many of these rental buildings are relying on fleecing residents with $1000+ move-in and other fees in order to make the business plan pencil out?

(Comments wont nest below this level)
Comment by Ben Jones
2018-05-06 14:52:12

I’m sure people with dementia are happy to pay more for luxury amenities. They may forget to use them, but hey, the lot was expensive.

 
 
 
 
Comment by Mafia Blocks
2018-05-06 10:38:04

Friday Harbor, WA Housing Prices Crater 6% YOY On Waning Confidence As Tech Layoffs Accelerate

https://www.zillow.com/friday-harbor-wa/home-values/

https://snag.gy/m5EzRB.jpg

 
 
Comment by scdave
2018-05-06 08:20:36

showed a need for more units. Oops! ??

I am watching approved & initialed developments around here very closely…Trying to see if they are going to pull the trigger and put a shovel in the ground…Between the cost of rents, the increasing vacancy its telling to watch what the big elephants do going forward…IMO, if they pull back with new starts, that tell me there is a change in the wind…

Rents have gone to the moon along with housing costs…Construction costs are the same..Take a look at the Lumber price chart for the past year…Concrete is $163. per yard…A close friend has a electrical contracting firm that runs about 60 people…He charges $137. per hour in his bids for his electricians…Landscaping guy tells me that he can’t get his laborers to work for $250. per day anymore…They want $350…

 
Comment by Uncle Warren
2018-05-06 08:21:07

P.T. Barnum was right: There really is a sucker born every minute.

Warren Buffett, Charlie Munger Slam Bitcoin Again, Resort To Elementary School Insults
By Helen Partz
15 hours ago

Billionaire investor and Berkshire Hathaway’s Chairman and CEO Warren Buffett reiterated his negative stance towards cryptocurrencies at the annual meeting of his company Saturday, May 5. Buffet repeated his idea that cryptocurrencies will come to a “bad ending,” and claimed that Bitcoin (BTC) is “probably rat poison squared,” according to CNBC.

In response to a question on Buffet’s view of cryptocurrencies raised by an attendee from Ukraine, the “Oracle Of Omaha” has made yet another anti-crypto statement. According to Buffet, Bitcoin is not a “productive” asset, unlike land or corporate shares. As a result, investors’ demand for it is the only price-determining factor, making digital currency a handy tool for “charlatans,” Buffet said.

The billionaire investor claimed that cryptocurrency community is in for a “bad ending” after the “euphoria wears off.”

Berkshire Hathaway’s Vice Chairman Charlie Munger echoed Buffet’s criticism of cryptocurrency investment, albeit in much harsher terms:

Someone else is trading turds and you decide, “I can’t be left out.”

Earlier in February, Munger called Bitcoin “totally asinine” and argued that people get involved in crypto ”because everybody wants easy money.”

Comment by Cryptonick
2018-05-06 11:38:56

‘Someone else is trading turds and you decide, “I can’t be left out.”’

FOMOOTT = Fear of missing out on turd trading

 
Comment by Mr. Banker
2018-05-06 13:54:38

“Earlier in February, Munger called Bitcoin “totally asinine” and argued that people get involved in crypto ‘because everybody wants easy money’.”

These people are just plain stupid.

Comment by Professor 🐻
2018-05-06 14:45:33

I attended a wedding reception last night and found myself sitting next to an attorney friend who tried to educate me on the reasons Bitcoin is a great investment last fall. I couldn’t resist asking how the Bitcoin investment was working out. He indicated that he is “holding.”

At that point, I couldn’t resist asking if he meant “HODLing.” He got the reference.

I didn’t go as far as suggesting that buying and HODLing Bitcoin amounts to gambling, which technically is against his religion.

Comment by BlackSwandive
2018-05-06 18:27:30

I actually saw a commercial for crypto trading, and I watch TV about once a month, if that.

(Comments wont nest below this level)
Comment by Professor 🐻
2018-05-06 18:35:56

That sort of thing happens in the late stages of a mania.

 
 
Comment by Carl Morris
2018-05-07 11:15:00

I didn’t go as far as suggesting that buying and HODLing Bitcoin amounts to gambling, which technically is against his religion.

Nice :-). LDS “investors” hate that, whether it’s straight up gambling like crypto, or convoluted stuff like MLMs.

(Comments wont nest below this level)
Comment by OneAgainstMany
2018-05-07 14:05:29

Yeah, LDS investors as a subset are disproportionately likely, as well as many other church-goers, to be duped into outright ponzi schemes and affinity fraud by fraudsters. I’ve worked in the MLM industry and I could start an entire blog talking about how treacherous and fraudulent these “business opportunities” are. The best thing I’ve ever come across that encapsulates the absolute deceit and theft that is represented by the MLM industry was John Oliver’s MLM segment.

 
 
 
 
 
Comment by Ol'Bubba
2018-05-06 08:35:21

“class B vacancy here soared 1.6 percent year over year”.

Since when does 1.6% warrant “soared” as an adjective?

Comment by scdave
2018-05-06 08:49:38

I agree Bubba but the important part is the trend line…The trend can either be your friend or your demise if you fail to recognize it and act accordingly…This year I am seeing CAP rates increase in all area’s outside the typical “Hot Spots”…I also have seen a three-fold increase in investment properties available since the first of the year…

Comment by Ol'Bubba
2018-05-06 09:23:39

Yes, we could be in for a period of reckoning if interest rates and the yield curve rises, especially the maturities beyond 7-10 years.

Personally, I’ve shifted the my bond exposure to shorter durations/shorter terms and I exited my REIT index fund earlier this year.

If there is disruption in the CRE space, the REITs tend to overreact on the movement.

I guess it’s time to make a shopping list for future bargains.

Comment by scdave
2018-05-06 09:28:28

to make a shopping list for future bargains ??

OR, hunker down and just preserve what you already have…

(Comments wont nest below this level)
 
Comment by Ben Jones
2018-05-06 10:08:52

‘Rental completions reached the highest annual total since 2000 as 3,460 apartments were finalized in 2017. This was more than double the prior year’s sum. Deliveries will remain heightened as builders have nearly 5,000 rentals underway with completions scheduled into 2019′

(Comments wont nest below this level)
Comment by Mafia Blocks
2018-05-06 10:25:20

Santa Rosa, CA Housing Prices Crater 5% YOY As New Rental Housing Floods Sonoma County

https://www.zillow.com/santa-rosa-ca/home-values/

https://snag.gy/m5EzRB.jpg

 
Comment by scdave
2018-05-06 10:25:28

have nearly 5,000 rentals underway ??

And, they may have triple that in the planning pipeline…

I would like to mention another thing that is (I suppose) unique to my area…The big dogs (Google etc.) are flexing their mussel with planners in the valley…Even though there has been a lot of apartment development here it is outrageously expensive…Google and others are stepping in (In the interest of current & future employees) in planning to build apartments next to there campuses…Google wanted to build 12,000 units in Mt. View next to their campus…Mt. View offered them 1,000 units…Then for awhile, things went silent…All of a sudden, city planning says its okay for Google to build what they need…They are proposing the same thing in downtown San Jose…

It seems to me that Google (and others) are quietly using the big stick with city planners…Either let us build our own housing so we can offer employees a clean, affordable, easy commute to work or we are out of here…

So you say, would Apple leave after spending 3 Billion to build a new campus ?? 3 Billion is a rounding error for Apple…Apple wants thousands of apartments built next to their campus in Cupertino on the Valco site…Cupertino residents are pushing back “HARD” for all the Nimby reasons…

Who’s going to win this ?? Google, Apple and others or the residents who live in the same area ?? My guess is the city planners blink…Don’t want to kill the golden goose that is producing 10’s of millions in revenue to city coffers…

 
Comment by GreenEggsAndSpam
2018-05-06 16:04:48

I would assume the campuses the big brother tech giants build are like old soviet style housing - all your communications will be monitored so as not to let any trade secrets get out and suppress any “untruths”.

And what sort of tech is apple, facebook and google doing nowadays thats halfway cool? I cant think of a single thing worth a damn. iWatchU? lol. Search is done, stick a fork in it. More emojis - just what my life has been missing. Anything cool is being done at small companies and startups, and probably mostly hardware.

 
Comment by Mafia Blocks
2018-05-06 16:54:40

And these “companies” still don’t earn a profit.

Cupertino, CA Housing Prices Crater 13% YOY As Bay Area Confidence Plummets And Layoffs Accelerate

https://www.movoto.com/cupertino-ca/market-trends/

 
Comment by OneAgainstMany
2018-05-06 17:00:52

In my opinion, the only thing being done now that is cool and potentially meaningful to wider audience is self-driving.

 
Comment by GreenEggsAndSpam
2018-05-06 17:59:06

I dont see how the ROI on self driving cars is going to pencil out for the average joe/jane market. For military applications and space exploration only imo.

 
 
 
Comment by Mr. Banker
2018-05-06 14:02:36

The trend is indeed my friend. The trendline that measures common sense has been plunging for years and as a consequence life for me has been incredibly easy.

And I expect no change whatsoever in this plunging trendline’s direction.

Life is good and it is destined to become much, much gooder.

😁

 
 
Comment by b
2018-05-06 16:30:07

the market in Seattle is bifurcating. The Amazons/Googles want high end commercial A. The existing commercial A and B are seeing vacancy.

Comment by BlackSwandive
2018-05-06 18:32:36

The entire economy and population of the country is bifurcated. The haves are doing better than ever, the have nots are doing the opposite and racking up debt at never before seen levels.

Comment by Professor 🐻
2018-05-06 18:37:29

Third world dictatorship is on the way.

(Comments wont nest below this level)
 
 
 
 
Comment by Professor 🐻
2018-05-06 08:35:22

Are long-term Treasurys really as horrible an investment as some claim?

Buffett: Bonds are ‘terrible investment’ at anything near current yields
By William L. Watts
Published: May 5, 2018 12:56 p.m. ET

Billionaire investor Warren Buffett on Saturday said long-term bonds are a “terrible investment.” In response to a question on the outlook for Treasurys, the Berkshire Hathaway (BRK.A, +1.93% BRK.B, +2.10%) chairman and chief executive dismissed the appeal of long-term bonds, while noting, as an aside, that rising short-term yields mean Berkshire’s holdings, which have an average maturity of around four months, have produced around $500 million more pre-tax income than at the same time last year. Buffett noted an after-tax return on a 10-year note (TMUBMUSD10Y, +0.10%) would come in near 2.5%, while the Fed is working to push inflation to 2%. Berkshire Vice Chairman Charlie Munger said the near-zero interest rates implemented by the Fed in response to the Great Recession weren’t fair to savers but were of enormous benefit to holders of other assets, including Berkshire shareholders. “We’re a bunch of undeserving people and we hope that we continue to be so,” Munger said.

Comment by Professor 🐻
2018-05-06 08:49:25

Any insights on why it’s smart to own short-term Treasurys but dumb to own long-term Treasurys?

Markets
Playing With $100 Billion, Warren Buffett Is Giant Trader of U.S. Treasury Bills
Berkshire Hathaway now one of world’s largest owners of Treasury bills; cash pile soars as it struggles to find acquisitions
By Nicole Friedman and Daniel Kruger
Feb. 23, 2018 5:30 a.m. ET

Berkshire Hathaway Inc. shareholders will look to Warren Buffett’s annual letter on Saturday for new clues of what the conglomerate plans to do with more than $100 billion in cash.

There is little mystery about who is getting that money meanwhile: Uncle Sam.

Berkshire has used its mounting cash pile to become one of the world’s largest owners of U.S. Treasury bills.

Comment by Ol'Bubba
2018-05-06 09:30:40

“Any insights on why it’s smart to own short-term Treasurys but dumb to own long-term Treasurys?”

Here’s my take: If inflation and interest rates rise, the long-term Treasuries suffer a loss of principal.

In the same rising interest and inflation rate environment, you’re less exposed to the risk of principal loss, and when the short term treasuries mature you can reinvest at a the higher interest rate.

So, if I’m looking for a little income along with a return of my principal, go with the short term treasury bills and pass on the long term treasury bonds.

Currently (5/4/2018) the 30 year treasury is yielding 3.12%, and the 6 month bill is yielding 2.03%.

Comment by Professor 🐻
2018-05-06 09:56:26

“Here’s my take: If inflation and interest rates rise, the long-term Treasuries suffer a loss of principal.”

Here’s my take: With the Fed finally getting serious about removing the punchbowl after a decade of extraordinary accommodation, it’s hard to predict whether long-term yields are destined to go up or down over the foreseeable future time horizon. Ending yield suppression certainly should result in higher long-term Treasury yields, but this has already been priced in to a large degree.

Inflation is tame, other than in the assets whose values were artificially inflated through yield suppression. The expansion is long in the tooth, and unemployment has reached levels that normally occur within a couple of years of an economic downturn. The U.S. stock market is wobbly, and emerging market assets are submerging as the Fed calls in its chips. Talk of a possible trade war is still in the headlines.

All told, there are plenty of reasons that long-term Treasurys might experience a flight-to-quality move which drives yields down from current levels before they rise much higher from here. Long-duration Treasurys stand to gain more in a flight-to-quality move than short-term, for the same reason they do worse when yields increase, which is the longer period of coupon payments and later return of principle.

It wouldn’t surprise me if we learned in a few months that Uncle Warren was snapping up long-term Treasurys after telling everyone what a bad investment they are.

(Comments wont nest below this level)
 
Comment by Professor 🐻
2018-05-06 10:03:26

“In the same rising interest and inflation rate environment, you’re less exposed to the risk of principal loss, and when the short term treasuries mature you can reinvest at a the higher interest rate.”

This seems to be the strategy Uncle Warren is pursuing. Makes sense in a high inflation environment. Maybe this is on the way, and I’m just missing it.

(Comments wont nest below this level)
 
Comment by Professor 🐻
2018-05-06 10:20:05

“Currently (5/4/2018) the 30 year treasury is yielding 3.12%, and the 6 month bill is yielding 2.03%.”

With headline inflation nearing 2%, the six month to thirty years Treasury yield spread represents a very low inflation risk premium.

History has not dealt kindly with the aftermath of protracted periods of low risk premiums.

– Alan Greenspan

(Comments wont nest below this level)
 
Comment by scdave
2018-05-06 10:34:39

the long-term Treasuries suffer a loss of principal ??

Respectfully, No they don’t…You may only lose principal if you sell before maturity…Now, you can say that you may or may not lose purchasing power after maturity, but that is a unknown because it is far out down the road…A low yielding T-bil may look horrendous in 2019 but who’s to say that it isn’t a home run in the year 2022…

Bubba, if you have not yet, watch the video I posted below…Its about 26 minutes…He is a contrarian for sure but he makes a legit argument for investing in T-bills today…Particularly for someone who has preservation as a top priority which I suspect most elder’s do…

(Comments wont nest below this level)
Comment by tresho
2018-05-06 10:53:37

someone who has preservation as a top priority which I suspect most elder’s do…
I’m one of them. I see no point in a T-bill more than 5 years away. That being said, the 6-month rate quoted recently is more than most banks pay on their day to day savings or even many CDs of same maturity.

 
Comment by Professor Bear
2018-05-06 11:40:57

“…the 6-month rate quoted recently is more than most banks pay on their day to day savings or even many CDs of same maturity.”

Suggestion: Compare the 5-year Treasury bill yield to what banks are paying on 5-year CDs.

I suspect you would do much better on the 5-year Treasury bill than a CD, though I haven’t made the comparison.

 
Comment by OneAgainstMany
2018-05-06 12:02:48

Professor, I’m getting 3.2% on my 5-year bank CDs. I shop on rates on depositaccounts.com. Just put $20k to work on 5-year note.

 
Comment by Professor 🐻
2018-05-06 13:51:49

“depositaccounts.com”

Thanks.

Any thoughts on how a lender can afford to pay above the risk-free rate?

I have a personal anecdote to share later…

 
Comment by Professor 🐻
2018-05-06 14:52:58

The risk of holding Treasurys to maturity is “higher than expected” inflation, which eats away the value of the principle between issue date and maturity. An inflation rate slightly above 2% will reduce the value of the principle on a 30-year Treasury by 50% over the thirty-year term. The devaluation loss is far worse at double-digit inflation rates, as were experienced in the U.S. during the 1970s. Of course it’s different this time!

 
Comment by OneAgainstMany
2018-05-06 17:06:57

Yeah, which is why I never go over 5-years. I’ve had 3.1% notes for over $200k locked up in PenFed for 7 years. That was a really good move back then since we were at ZIRP. I’m getting a little nervous about locking up at 5 right now with inflation starting to rear its head, especially since the spread between 1-year CDs and the best 5-year ones is so small.

With regards to your question (why can institutions afford to pay above the risk-free rate), I suspect that it is because they are desperate for funds or they have some really good net interest margin structure. As long as the institution is FDIC or NCUA insured, and I am below $250k, I don’t really care. Since I live in UT and the economy is hot right now, the rates are really good. Liberty bank seems to be something I’ve never heard of (I think an online bank only) and they are offering 3.2% on 5-year. These online bank types can do this since they don’t have the legacy costs of branches and tons of tellers and other expenses. Goldman Sachs has some of the most competitive rates right now and they are funneling these deposits back into their consumer lending platform, Marcus.

 
Comment by Professor Bear
2018-05-06 20:44:06

Back in the mid-1980s, the best CD rates were offered by Savings & Loans. I had a 5-year CD at the time from Missouri Savings, which was a local S&L in the area I lived at the time. It was paying something like 8.5%, which was maybe 0.5% above what seemed to be the market rate, based on most other offer rates on CDs.

When the S&L crisis hit, Missouri Savings shuttered its operations, along with a wide swath of the industry (kind of like subprime in the 2007-2009 era!). My CD was FDIC insured, but there was a period of uncertainty during which it was unclear whether it was just the principle that was insured, or if accrued and promised interest was included. At the end of the ordeal, Missouri Savings CD investors were made whole on principle and interest through maturity.

Lessons learned:

1) Bailouts are great, so long as you are on the receiving end.

2) Above-market interest rates are often indicative of above-average risk.

 
Comment by OneAgainstMany
2018-05-07 14:07:08

Those are both good lessons to learn. I’ve been fortunate that I’ve never had to be in a situation where I received the bailout, but the deposit account website does have a bank health indicator, though I’m not sure how indicative it actually is of bank health or to what degree one could rely upon it.

 
Comment by tresho
2018-05-07 15:32:28

how indicative it actually is of bank health
Around 2008 I had accounts at several banks that went under - they were actually taken over by healthier banks. None was a surprise based on what I could glean from the internet before the final blow.

 
 
 
 
Comment by scdave
2018-05-06 08:56:12

Billionaire investor Warren Buffett on Saturday said long-term bonds are a “terrible investment.” ??

Well, this guy completely disagrees…I have talked about this interview before…I still occasionally watch it again…It was from a couple of months ago…Preservation of Capital is the theme I believe…

https://www.youtube.com/watch?v=dnal6-5I-vQ

Comment by Professor 🐻
2018-05-06 10:27:00

Saw that when you first posted it. I tend to agree with the guy, though admit this may reflect my own confirmation bias. After all, I am a professed bear.

 
 
Comment by Professor 🐻
2018-05-06 13:43:03

FTfm
Investing in funds
Money flies out of bond funds as bull market ends
Some investors are pulling out but others will still relish a stable income
Owen Walker 12 hours ago

Bond funds hoovered up cash for more than a third of a century as investors were drawn by their promise of modest, reliable returns that balanced out their allocations against more adventurous asset classes.

But as global monetary policy tightens and central banks promise further interest rate rises, many commentators have called the end of the 36-year bond bull market. The most popular fixed income funds are losing their lustre.

“Clearly market sentiment towards bonds has deteriorated,” said Andreas Utermann, chief executive of Allianz Global Investors, the €498bn fund house that has 40 per cent of its assets in fixed-income products.

Comment by Professor 🐻
2018-05-06 14:58:25

Seems like bond funds are one of the worst possible investments now, as evidenced by all the money flying out of them. Which makes one wonder: Why aren’t yields rising faster as the race to the exit plays out?

Comment by BlueSkye
2018-05-06 16:20:34

Money flying out?

I was thinking that every one who is selling is selling to someone who is buying.

(Comments wont nest below this level)
Comment by Professor Bear
2018-05-06 20:50:15

My understanding is that when mutual fund shares are sold, the fund provider needs to send cash in exchange for taking back the shares. The fund provider may thus need to sell the underlying in order to raise cash to pay off the exiters. You can see how this might not be too good for the shareholders who keep the faith and don’t sell.

 
 
 
 
 
Comment by Neuromance
2018-05-06 08:58:22

Yet another example of government pumping money into a sector to make it more “affordable”. Of course, the net result here will be to jack up community college costs. Just like government jacks up costs in prescriptions and housing and any other sector into which it injects vast amounts of money. Those sectors are able to soak up the money like parched farmland after a rainstorm.

As I’ve said, government “affordability” programs help the poor, harm the middle class and have no impact on the wealthy.

BUT - the cumulative net effect of these programs is subtle (but unavoidable - costs are driven up), and politicians believe they benefit from the immediate headlines.

Maryland Gov. Hogan will sign bill offering many community college students free tuition
by Scott Dance
May 4, 2018
The Baltimore Sun

Gov. Larry Hogan will sign a bill next week offering a chance for a free community college education to thousands of Marylanders, his spokeswoman said.

Under the legislation passed in the final minutes of this year’s General Assembly session, the state would spend $15 million a year on scholarships worth as much as $5,000 to low- and middle-income students starting their community college educations.

Hogan had previously been noncommittal when asked about the legislation, which passed on mostly party-line votes [Democrat pro/Republican anti] and by veto-proof margins [Maryland is perhaps the bluest state in the Union] in both chambers of the assembly.

http://www.baltimoresun.com/news/maryland/politics/bs-md-hogan-approves-community-college-20180504-story.html

Comment by MacBeth
2018-05-06 09:46:46

So not only do those who completed their college careers 10 years ago have to pay their own inflated tuitions, now they get to pay for all the new students as well.

Brilliant.

How about cutting salaries, pensions and indemnities instead? No, can’t have that. It is their right to bilk the crap out of others.

When does the sense of entitlement end?

Comment by Professor 🐻
2018-05-06 10:05:42

“How about cutting salaries, pensions and indemnities instead? No, can’t have that. It is their right to bilk the crap out of others.”

How is making good on long-term contractual agreements ‘bilking’?

Comment by tresho
2018-05-06 10:29:36

The best way of bilking often involves setting up a contractual relationship. Pensions to public employees are the prime example. The contractual promise often has no other connection to reality.

(Comments wont nest below this level)
Comment by Mr. Banker
2018-05-06 14:07:31

Pay ‘em in promises, it’s cheaper.

 
Comment by BlackSwandive
2018-05-06 18:55:08

The problem with these public employee pensions is that the public never signed off on them. We have an out of control government on all levels - local, state and federal. They are committing what can only be described as financial rape, where the citizenry is left penniless in the future while the former “public servants” live a retirement fit for a fairy tale.

 
 
 
 
 
Comment by Professor 🐻
2018-05-06 08:58:52

I guess a lot of seniors have high-rise living in their futures.

Business information and analysis about Seniors Housing
Smaller Markets Get In on Senior Housing Highrise Boom
April 9, 2018 by Mary Kate Nelson

It’s becoming more common to see high-rise senior housing communities popping up in dense urban locations, like New York City, Dallas and Toronto. But other, smaller cities are also getting in on the action.

Now, for example, a senior housing high-rise is expected to appear on the banks of the Zumbro River in Rochester, Minnesota, a city of approximately 216,000 people.

Rochester isn’t the only mid-size city that may soon see a high-rise senior housing development. For example, a 42-story senior housing community is in the works in Fort Lauderdale, Florida, and a 15-story senior housing community to be operated by Life Care Services is planned for the St. Louis, Missouri, area. Additionally, Saint John’s on the Lake in Milwaukee, Wisconsin, is getting ready to start construction on another 22-story tower.

 
Comment by Professor 🐻
2018-05-06 09:16:12

The emerging markets picture certainly is getting interesting!

The Financial Times
Emerging markets
Emerging market investors braced for turbulence
- All eyes are on US and the performance of the dollar
- Investors will retreat deeper from emerging market assets if they think the dollar rally has further to go
Jonathan Wheatley in London 16 minutes ago

Emerging markets investors are braced for turbulence in the coming days following last week’s sharp currencies sell-off that led to drastic measures by Argentina’s central bank to stop a slide in the peso.

Markets have been roiled by a stronger US dollar, which has prompted a wave of selling in emerging market currencies, stocks and bonds.

 
Comment by Professor 🐻
2018-05-06 09:24:35

It must suck to own a house in a neighborhood vulnerable to volcanic eruptions.

Hawaii eruption destroys 5 homes as toxic gas and molten lava threaten residents
By Susannah Cullinane, Steve Almasy and Ray Sanchez, CNN

Comment by GreenEggsAndSpam
2018-05-06 15:29:42

A big island commenter on a yahoo news article said - and this was before the lava started flowing - that he was doing bong hits during the earthquakes and called it “shake and bake”. Had to lol at that.

 
 
Comment by Neuromance
2018-05-06 09:46:03

From the Fed’s balance sheet normalization statement: https://www.federalreserve.gov/monetarypolicy/policy-normalization.htm

“At its September 2017 meeting, the FOMC agreed to start the program for gradually reducing the Federal Reserve’s securities holdings in October 2017.”

“The Committee intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment of the principal payments it receives from securities held in the System Open Market Account.”

“For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.”

“For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.”

—————————————
(millions of dollars)
October 5 2017 balance sheet (month 0):
Treasury: 2,465,435
Mortgages: 1,768,160
Total: 4,506,683

January 4 2018 balance sheet (month 3):
Treasury: 2,452,495
Mortgages: 1,764,929
Total: 4,494,671

May 2018 balance sheet (month 7):
Treasury: 2,405,640
Mortgages: 1,744,972
Total: 4,413,300
—————
Treasury delta actual: 59,765 (millions)
Treasury delta expected: (3×6) + (3×12) + (1×18) = 72 billion

MBS delta actual: 23,188 (millions)
MBS delta expected: (3×4) + (3×8) + (1×12) = 48 billion

Total delta actual: 93,383 (millions)
Total delta expected: 72+48 = 130 billion
—————
—————————————

So unless I’m missing or misreading something, my take is it looks like their MBS decline is about half of what was scheduled, and their Treasury decline is is about 83% of what was scheduled.

Below is a link to the SOMA account which is supposed to be reduced. Also realize the central bank is still playing poker against the public, its numbers are self-reported so YMMV and FWIW.

—————————————
SOMA Account specifically:
As of 10/4/17:
Treasury notes/bonds: 2,322,642,739.5
Agency MBS: 1,768,159,949.5

As of 1/3/2018:
Treasury notes/bonds: 2,303,345,554.7
Agency MBS: 1,764,929,787.1

As of 5/2/2018:
Treasury notes/bonds: 2,244,255,236.2
Agency MBS: 1,744,972,197.7

Comment by Professor 🐻
2018-05-06 10:10:31

Baby steps normalization

Comment by Neuromance
2018-05-06 11:29:35

A large balance sheet requires the Fed to pump a tremendous amount of money into the FIRE sector in order to maintain that size: https://www.newyorkfed.org/markets/ambs/ambs_schedule.html

For MBS, a 23 billion drop from 1.8 trillion is just about 1%. Over 7 months, quite the baby steps indeed. For Treasuries, a 60 billion drop from 2.5 trillion is about 2.5%.

It’s interesting how another emergent property of an economy, when it reaches a certain size, is the ability to use the central bank as a tax and redistribution entity via money printing and monetary policy. This doesn’t obviate the need for taxes, but it is an invisible taxation mechanism, the ability to seamlessly extract purchasing power from the population.

The Fed prints a hundred bucks and gives it to a primary dealer, or the government. I print a hundred bucks and give it to a mechanic. Apparently my redistribution is less effective than the Fed’s.

HRC: “We can’t afford to have that money go to the private sector. The money has to go to the federal government because the federal government will spend that money better than the private sector will spend it.” Of course :)

Comment by Professor 🐻
2018-05-06 15:01:39

At this rate, it will take the Fed 100 years to normalize!

(Comments wont nest below this level)
 
Comment by BlackSwandive
2018-05-06 19:10:27

This is how you rob a population blind. The Fed and bankers are doing to the United States and its population what a vulture capitalist does to a corporation it takes over - saddles it with debt while stripping all the equity.

(Comments wont nest below this level)
 
Comment by Professor Bear
2018-05-06 20:53:52

“It’s interesting how another emergent property of an economy, when it reaches a certain size, is the ability to use the central bank as a tax and redistribution entity via money printing and monetary policy. This doesn’t obviate the need for taxes, but it is an invisible taxation mechanism, the ability to seamlessly extract purchasing power from the population.”

You may have uncovered the secret to Ronald Reagan’s tax cuts!

What I don’t understand is, given the potential to use the printing press to raise stealth taxes, why bother with an income tax at all? After all, a tax on income is also a tax on whatever productive activity was used to produce the income. Why would we want less production, if we could raise taxes in a way that did not harm marginal productivity?

(Comments wont nest below this level)
 
 
 
 
Comment by Mortgage Watch
2018-05-06 09:49:08

Grapevine, TX Housing Prices Crater 5% YOY As Plunging Oil Market Roils Oil States

https://www.movoto.com/grapevine-tx/market-trends/

 
Comment by Karen
2018-05-06 11:34:15

This is huge. The msm is finally admitting what some of us have said all along: foreign competition, not automation, is what has destroyed American manufacturing; and, as a side note, manufacturing jobs are not “low-skill jobs”.

Oh, and all this stuff about American manufacturing firms’ output soaring as their worker base was shrinking, “proving” the automation theory? Total bunk. Wow.

But of course it was all just a “mistake” in interpreting data (made by the usual suspects).

The epic mistake about manufacturing that’s cost Americans millions of jobs

https://www.msn.com/en-us/money/markets/the-epic-mistake-about-manufacturing-thats-cost-americans-millions-of-jobs/ar-AAwGZsq?li=BBnbfcN

Looking back, there were two kinds of people who lived in America in 2016: people who believed Donald Trump, and people who believed data.”

“Trump claimed on the campaign trail that globalization had destroyed US manufacturing—and in the process, the American economy—by letting China and other countries steal American factory jobs.”

“The data camp didn’t get it. Yes, the US had hemorrhaged manufacturing jobs, losing close to 5 million of them since 2000. Trade may have been a factor—but it clearly wasn’t the main culprit. Automation was.”

“But it turns out that Trump’s story of US manufacturing decline was much closer to being right than the story of technological progress being spun in Washington, New York, and Cambridge.”

“Thanks to a painstaking analysis by a handful of economists, it’s become clear that the data that underpin the dominant narrative—or more precisely, the way most economists interpreted the data—were way off-base. Foreign competition, not automation, was behind the stunning loss in factory jobs.”

Comment by Ben Jones
2018-05-06 12:02:07

‘For a decade or so, this phenomenon had been put forth by Ivy Leagueeconomists, former US secretaries of treasury, transportation, and labor, Congressional Research Services, vice president Joe Biden, president Barack Obama—and by Quartz too, for that matter. In a 2016 New York Times article titled “The Long-Term Jobs Killer is Not China. It’s Automation,” labor economist David Autor laid out the general consensus. Some manufacturing unemployment “is globalization, but a lot of it is we require many fewer workers to do the same amount of work,” said Autor. “Workers are basically supervisors of machines.” Harvard economist Lawrence Katz concurred: “Over the long haul, clearly automation’s been much more important—it’s not even close.”

Yeah, anyone who walks into a wally world and looks at where stuff is made knows this is horse hockey.

Comment by Mafia Blocks
2018-05-06 14:10:28

Obama, Biden and ivy league economists…. None of which can tie their own shoes without instructions.

Comment by Tarara Boomdea
2018-05-06 22:34:49

JIC, amazingly unlikely, there’s a person out there who hasn’t seen creepy Joe Biden in action:

Starring JOE BIDEN! As Your Creepy Uncle That Wont Stop Touching You!

(Comments wont nest below this level)
 
 
 
Comment by Neuromance
2018-05-06 15:18:36

Lower labor-cost countries don’t have the:
1) Legal infrastructure
2) Physical infrastructure
3) Environmental laws
4) Worker protections

that the US has. Those above items cost money. When we try to impose tariffs to equalize expenses for environmental and worker protections, among other things, free-traders howl.

When we impose worker protections and environmental protections, we’re not intentionally trying to put American workers out of work. Our options to deal with that are limited.

We need people here to have work, as humans are geared towards being active, towards having a mission in life (even if it’s Sisyphean), and to have some way of distributing purchasing power (money) that is fair and equitable (remember the economy is a competition for resources). Schemes that encourage indolence, remove the “mission” aspect from life and rely on patronage or favoritism to distribute purchasing power are individually and socially destructive.

Comment by BlueSkye
2018-05-06 16:26:33

Also, those of us who work must pay the expenses of those who do not. Excuse me, those who work here. Workers in Asia do not. You cannot have free trade without a Global social safety net, which requires global socialist government. This might be why Globalists like open borders.

 
Comment by Fl_Skeptic
2018-05-06 17:09:35

I like what you said. I worked in petrochemicals from 1980-2000 as a chemical engineer. It is not something you want to do if you do not have those 4 things you listed. I see these foreign companies coming here to do business and they are sub-standard. So they build their factories here, how would it be to work in one of them?

Worker protections ended with the lawsuit rule changes implemented under Bush that have been used to protect corporate abuses. The EPA is a politicized climate control bureaucracy. No help there.

I sure hope Trump is successful in redirecting the country. I like what you said, but we do not have it here.

Comment by BlueSkye
2018-05-06 17:55:48

Hey Fl. Bayway Refinery circa 1980 here.

(Comments wont nest below this level)
 
 
Comment by Professor 🐻
2018-05-06 19:18:31

‘Schemes that encourage indolence, remove the “mission” aspect from life and rely on patronage or favoritism to distribute purchasing power are individually and socially destructive.’

I take it that you are not a Democrat?

Comment by Neuromance
2018-05-07 04:41:11

Professor 🐻 I take it that you are not a Democrat?

:)

(Comments wont nest below this level)
Comment by Professor 🐻
2018-05-07 06:55:49

Is there a political party equivalent of “atheist”? “Agnostic” is far too weak a term to capture my attitude towards politics and politicians.

 
 
 
 
Comment by Apartment 401
2018-05-06 16:21:24

I’ll be back in Northeast Ohio this week for the first time since 2015. Yes, downtown Cleveland got some surface polish for the 2016 GOP convention and some shiny new buildings, but the industrial rot is still there. East 55th Street, Chester Avenue, Euclid Avenue, Carnegie, Cedar, and alot of the West Side are still abandoned buildings and vacant lots. Thanks, NAFTA.

 
Comment by BlackSwandive
2018-05-06 19:13:05

If you want to talk about “low-skilled jobs,” take a look at paper pushers in all fields including the local, state and federal government levels.

 
Comment by jeff
2018-05-06 19:59:32

Tough to live the dream at $3.60 an hour

“foreign competition, not automation, is what has destroyed American manufacturing”

Sophia Yan
Published 12:24 AM ET Mon, 27 Feb 2017
CNBC.com

Chinese factory workers are now getting paid more than ever: Average hourly wages hit $3.60 last year, spiking 64 percent from 2011, according to market research firm Euromonitor. That’s more than five times hourly manufacturing wages in India, and is more on par with countries such as Portugal and South Africa.

https://www.cnbc.com/2017/02/27/chinese-wages-rise-made-in-china-isnt-so-cheap-anymore.html

Comment by Albuquerquedan
2018-05-07 09:43:07

The article is over a year old, it would be interesting to see a current article on the subject. Still interesting but it is over one year old citing numbers from the previous year. If I had to guess wages are probably $4 an hour today.

 
 
 
Comment by azdude
2018-05-06 14:07:09

artificial asset prices are the last attempt to keep it all from nose diving.

 
Comment by 2banana
2018-05-06 14:18:47

And then there are people who believe what they see with their OWN eyes.

Obama, Clinton, Bush were all globalists who could have cared less about manufacturing and the good jobs those factories opened to the middle class.

Perot was right.

Trump is right.

And the snowflakes and pajama boys still have not figured it out.

+++++

“Looking back, there were two kinds of people who lived in America in 2016: people who believed Donald Trump, and people who believed data.”

Comment by Ben Jones
2018-05-06 14:49:02

It’s so ridiculous. We’ve talked about it on the blog over and over for more than 10 years. What they’re covering up is this automation thing was a lie the globalist came up with the explain to the peasants. Thing is, we’ve all known this for 20 years plus. Do they really think we didn’t notice all the made in China/Vietnam/Mexico crap in garages? In the little north Texas town I grew up in there were many factories - all gone. And it wasn’t a big manufacturing place. I can imagine how bad other places got hit.

Oh no, there were two types of people, say these clowns.

Comment by Karen
2018-05-06 15:12:41

Makes you wonder why they’re admitting it now. When you read how the chattering class supposedly came to believe/peddle to the masses this automation fairytale, it hardly seems possible they didn’t know it was all total nonsense.

They’re not basing any of their data or assumptions on the actual number of blue widgets and black wingnuts produced by American factories.

They take sales, subtract the cost of electricity and parts, and then adjust that number to account for the supposed added-value of what they assume are better products produced this year than last.

The researchers’ conclusion?

“The adjustment makes it seem like the whole of American manufacturing is making many more goods than it actually is.”

 
Comment by Montana
2018-05-06 17:58:17

When I was a kid in the 60s our betters thought factory jobs were the worst thing in the world - mind numbing repetitive labor!

So everyone became lawyers instead.

Comment by Karen
2018-05-06 19:05:13

That’s pretty funny considering legal documents are about as mind-numbingly boring as you can get.

(Comments wont nest below this level)
 
 
 
Comment by rms
2018-05-06 16:10:27

IIRC, Henry Kissinger was the architect of this China trade policy, and Richard Nixon bought the narrative.

Comment by Albuquerquedan
2018-05-07 09:48:39

China did not change its economic policy until after 1979, Nixon was long gone. It was not until Bush senior and Clinton combined to get WTO status that it became a real player.

 
 
 
Comment by Lurker
2018-05-06 15:02:54

Saw a couple of interesting ads this week. Both are anecdotal, but these kinds of things usually pop up at the end of bubbles rather than the beginning -

- A flyer in the mail for a Manhattan high-rise near Lincoln Center offering… fractional ownership!

“This is the smart way to own a stylish second home in Manhattan, located in one of the City’s most energetic neighborhoods. A luxury member-owned Residence club, The Phillips Club2 at Lincoln Square combines the advantages of fractional ownership with the conveniences of the City’s finest hotels. As a Club Owner, you receive a real estate deed conveying a one-eighth interest in a Club Residence.”

Studios start at $187,000 for a 1/8th interest. Using the company’s projected 45 days per year occupancy, that’s only $4155 per night! Even if someone keeps it for 8 years, that’s still $519 a night. Not monthly counting fees and housekeeping, of course.

- “Audi on Demand,” an official Audi company version of Zipcar with Audi car rentals by the hour. Sounds like a good way to put unsold new inventory and excess lease returns to work now that the auto industry is running out of subprime borrowers. As the Audi rep explained, it’s for people who can’t afford a car but still want a concierge…

“On Demand is a part of Audi’s mobility plan. Like most automakers, Audi’s long-term goal is to get people who don’t own vehicles into cars, even if only for a few days. But what sets this service apart from others are the personal touches. Those helpful concierges are Audi’s not-so-secret weapon to retain customers…. The cheapest vehicle, the A3, costs $130 per day. The amazing R8 supercar will set you back $1,195 per day.”

 
Comment by Ben Jones
2018-05-06 15:13:20

‘Preferred Bank in Los Angeles disclosed recently that it has begun foreclosure proceedings on a pair of luxury apartment buildings in Manhattan, a move that will dramatically increase the level of nonperforming assets on its balance sheet. The loans have an outstanding balance of $41.7 million. Those who get too aggressive could be burned when the economic cycle takes the inevitable turn for the worse, bankers and industry observers said.’

The press release I posted said it took 13 months from origination to foreclosure. That’s some cycle. Oh and it was some Chinese related bank.

Comment by Professor 🐻
2018-05-06 16:22:16

‘Those who get too aggressive could be burned when the economic cycle takes the inevitable turn for the worse, bankers and industry observers said.’

Why is a turn for the worse inevitable?

Comment by BlueSkye
2018-05-06 16:34:42

Because it’s called a cycle?

If they called it a mania they’d have to say inevitable crash and burn.

Comment by OneAgainstMany
2018-05-06 17:12:50

This past year we were down to 1 car, but we rented a car when we drove to visit family. That was a really good decision because it was relatively cheap to rent the car and we racked up about 500-600 miles on the trip. Sometimes renting can be cheaper than owning.

(Comments wont nest below this level)
Comment by BlueSkye
2018-05-06 17:53:42

I do believe you are onto something. I own a rusty old high mileage truck, but I have a very reasonable occasional arrangement with a smokin Redhead. Cheaper than owning.

 
Comment by Carl Morris
2018-05-07 11:22:43

Yeah, Testarossas were always high maintenance.

 
 
 
 
 
Comment by b
2018-05-06 16:46:59

i was at the seattle mariners game today in box seats (got lucky from work).

Observations:
1. In the past, most of the Suites at Safeco Field were sponsored by major companies. Now i estimate only 25% of them were company (visibly owned). The rest seemed to be marked as private. Seems to early to be an impact from the tax changes

2. BofA had a suite down from us. The suite was 20 out of 24 filled with Asian (Chinese not Japanese). Was this an exception, or is BofA focused on Asia business

3. As you walked around the Suites in the old days, there tables were filled with nice food / drinks. Today it seemed to be snack plates, popcorn and such. Are folks cutting back.

Comment by Carl Morris
2018-05-07 11:24:16

. BofA had a suite down from us. The suite was 20 out of 24 filled with Asian (Chinese not Japanese). Was this an exception, or is BofA focused on Asia business

BofA has a sweet deal with China Construction Bank. It’s very easy to transfer money back and forth between the two if you have an account in each one.

 
 
Comment by Mortgage Watch
2018-05-06 16:48:37

Brooklyn, NY 11231 Housing Prices Crater 17% YOY As Housing Depreciation Slams Homeowners

https://www.zillow.com/new-york-ny-11231/home-values/

*Select price from dropdown menu on first chart

 
Comment by Apartment 401
2018-05-06 17:33:49

Another Boise housing article, because California equity locusts:

https://www.huffingtonpost.com/entry/housing-crisis-small-cities-boise_us_5ae878f7e4b055fd7fcfcee0

Comment by DirtyLawyer
2018-05-06 18:51:15

Yep. Open houses are swarming with buyers. Houses in decent areas go on market and have multiple offers and go pending in about 12-48 HOURS. It is nuts. There are bidding wars, writing personal family letters, waiving X, Y, and/or Z, etc. All the bullshit is in full force and effect.

Looking to buy our first home (we are not equity locusts), and it is challenging to predict how the growth will influence the housing market. It’s a situation where the market gains are unsustainable, but for how long will this ride last? How will the stream of new residents impact prices going forward? We are renting right now, but at 39 and 40 years old with a young kid, we’d like to buy in near future.

Comment by Mafia Blocks
2018-05-06 19:21:22

Why buy it when you can rent it for half the monthly cost? Buy later after prices crater for 75% less.

Danville, CA Rental Rates Crater 14% YOY As Contra Costa County Housing Market Implodes

https://www.zillow.com/danville-ca/home-values/

… and don’t forget to select price on the rental chart

 
Comment by BlackSwandive
2018-05-06 19:22:36

This is about the worst time to buy a house in the history of the United States. Renting is a no-brainer.

 
 
 
Comment by Apartment 401
2018-05-06 18:35:03

With no letup in home prices, the California exodus surges:

“California homeowners spend an average of 21.9% of their income on housing costs, the 49th worst in the nation, while renters spend 32.8%, the 48th worst. The median rent statewide in 2016 was $1,375, which is 40.2% higher than the national average. And the median home price was — wait for it — more than double that of the national average.”

https://www.marketwatch.com/story/with-no-letup-in-home-prices-the-california-exodus-surges-2018-05-03

Comment by Professor Bear
2018-05-06 20:57:53

“California homeowners spend an average of 21.9% of their income on housing costs,…”

That sounds really low. Must average in the costs of people who bought 30 years ago with new buyers. I’m pretty sure the typical new buyer pays a higher share of income on housing than a renter of comparable housing does, especially if you correctly include the Realtor’s fee and closing costs, all components of PITI, Mello-Roos, home maintenance and depreciation, etc. etc. etc.

 
 
Comment by Tarara Boomdea
2018-05-06 21:33:03

OT: I had to laugh, good for her…

Police: 70-Year-Old Woman Shoots Alleged Burglar During Home Invasion
May 5, 2018 at 12:21 pm

The home invader called 911 😂

Comment by jeff
2018-05-07 10:39:22

:)

 
 
Comment by Professor 🐻
2018-05-06 22:19:26

Rule #1 for getting out of a hole: STOP DIGGING!

The Financial Times
US News
Property sector
Fannie and Freddie press further into rental housing
Government-backed mortgage groups reject criticism they are subsidising luxury homes

Comment by Neuromance
2018-05-07 04:48:56

The people at the top of the Federal Reserve, at the top of the primary dealers, and at the top of the GSEs know what they’re doing. Heck, that Duke University student who was also an “adult film star” knew what was going on (she wrote an article in Time magazine online on that subject, the driving of prices higher in education by government aid). Namely that the more money you inject into a sector, the higher the prices go. Inject that money in the name of affordability and helping the poor and I guess you give yourself cover for higher profit.

I’ve said for a long time, government affordability programs help the poor, harm the middle class and have little impact on the wealthy.

Comment by Professor 🐻
2018-05-07 07:17:11

How does encouraging them to purchase a house that they can’t afford, which many of them are likely to lose, along with their accumulated home equity wealth gains, in the next recession, “help” the poor?

Is this kinda like, “We’re the gubbermint, and we’re here to help”?

 
 
 
Comment by In Colorado
2018-05-06 22:42:52

Oil pops above $70 for first time since 2014

http://money.cnn.com/2018/05/06/investing/oil-prices-70-dollars-barrel/index.html

I thought it was going to fall to $10, at least according to some who post here.

Comment by Professor 🐻
2018-05-07 07:18:32

Looks like inflation, and more Fed rate hikes to rein it in, are on the way.

 
Comment by Albuquerquedan
2018-05-07 09:52:32

It is Brent that really determines gasoline prices these days and that is above $75

 
 
Comment by Neuromance
2018-05-07 04:56:33

A buddy of mine was telling me I haven’t bought a house because I’m scared of the risk. “No risk, no reward” he intoned. I said, I guess, but the game is rigged. And I don’t like playing rigged games which rely on the whims of men behind the curtain, rather than natural forces which I am somewhat capable of identifying.

Those who are able to thrive in this environment, where you have central planners controlling vast amounts of money, are the ones who are best at making friends, and influencing, the planners. Favoritism and patronage again. The draining of the balance sheet - that could turn on a dime. Heck, it’s going much more slowly than originally anticipated. It’s that sort of thing. You can listen to their public pronouncements… but there’s no guarantee they’re telling the truth (”You f•ked up, you trusted us.” - Animal House).

Comment by BlueSkye
2018-05-07 06:53:43

Fear of unreasonable risk can save your life. Lack of fear is a hallmark of mania. Otherwise known as lack of insight.

 
Comment by Professor 🐻
2018-05-07 07:19:44

No stupidity, no remorse.

 
Comment by Professor 🐻
2018-05-07 07:25:49

”You f•ked up, you trusted us.”

The Subprime Primer

 
 
Comment by Mortgage Watch
2018-05-07 06:40:43

Bellaire, TX Housing Prices Crater 19% YOY As Oil Bust Slams Dallas Area

https://www.zillow.com/bellaire-tx/home-values/

*Select price from dropdown menu on first chart

 
Comment by Professor 🐻
2018-05-07 07:43:21

Run away!

Investors are fleeing emerging markets, and more pain could be ahead. Here’s why
Rebecca Ungarino | @ungarino
Published 3 Hours Ago

 
Name (required)
E-mail (required - never shown publicly)
URI
Your Comment (smaller size | larger size)
You may use <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> in your comment.

Trackback responses to this post