Economics

[ROAD_DOGG33J]

People are gambling on hertz stock. It went down to 40 cents after filing for bankruptcy. Now it's at $1.85.

They have been approved to offer up to $1 billion in stock. Guess that's a desperate attempt to inject some cash.

 

[Eunos_Cosmo]

There's basically nothing capitalism about that.

Why are more people not outraged by this? I can't understand it. THIS is wealth inequality...not taxes! This is the housing affordability crisis. This is the rigged system. It's the Fed - they've made it their purpose to redistribute wealth from the bottom to the top (as unfair as the reverse, but with more dire consequences, IMO) since the late 1970s.

 

[Danoff]

Why are more people not outraged by this? I can't understand it. THIS is wealth inequality...not taxes! This is the housing affordability crisis. This is the rigged system. It's the Fed - they've made it their purpose to redistribute wealth from the bottom to the top (as unfair as the reverse, but with more dire consequences, IMO) since the late 1970s.

I'm super upset about it. I get upset about this every time I see it. I'm just also a little resigned to it since I've seen the government step in and bail out private companies so many times. It's disappointing to say the least.

I don't know why more people don't notice or fight it.

 

[Eunos_Cosmo]

I'm super upset about it. I get upset about this every time I see it. I'm just also a little resigned to it since I've seen the government step in and bail out private companies so many times. It's disappointing to say the least.

I don't know why more people don't notice or fight it.

I wonder if more people would listen if this is what Bernie was shouting about on his megaphone...not Taxes...

 

[Eunos_Cosmo]

I was reading another woe-be-the-millennial article (google just loves to recommend them to me) specifically about how millennials, despite being 25% of the population only own 5% of US Housing Stock (which is kind of nuts!). I think the biggest issue is that housing supply is not keeping up with population growth. In the 1970s, when the US population was only 200 million, we were building housing at a pace of ~2.5M units per year! Now we have a population of 330 million and the most we've built since the recession was just over 1 million units per year - but more typically far less than 1 million per year. Expensive, populous California has done very poorly, building typically well under 100k units per year.

Developers are clearly not finding the economic incentives to build moderately (IE, affordable for median income people) priced housing. If the US needed roads, the government would build roads. The US needs housing...its a not dissimilar problem. Yes, public housing was largely a failure - though I'd argue that it was only a failure because the government gave up on it almost immediately after they were constructed - but I don't think what I'm talking about would need to be "public housing". It would be utilizing economic incentives to move the needle in the direction of convincing private developers to actually build housing for the non-rich. Lump it into the elusive "infrastructure week?"

 

[Danoff]

I was reading another woe-be-the-millennial article (google just loves to recommend them to me) specifically about how millennials, despite being 25% of the population only own 5% of US Housing Stock (which is kind of nuts!). I think the biggest issue is that housing supply is not keeping up with population growth. In the 1970s, when the US population was only 200 million, we were building housing at a pace of ~2.5M units per year! Now we have a population of 330 million and the most we've built since the recession was just over 1 million units per year - but more typically far less than 1 million per year. Expensive, populous California has done very poorly, building typically well under 100k units per year.

Developers are clearly not finding the economic incentives to build moderately (IE, affordable for median income people) priced housing. If the US needed roads, the government would build roads. The US needs housing...its a not dissimilar problem. Yes, public housing was largely a failure - though I'd argue that it was only a failure because the government gave up on it almost immediately after they were constructed - but I don't think what I'm talking about would need to be "public housing". It would be utilizing economic incentives to move the needle in the direction of convincing private developers to actually build housing for the non-rich. Lump it into the elusive "infrastructure week?"

Developers do build housing for the non-rich, but you can't build housing the for the non-rich in the middle of San Francisco or Los Angeles. The youngest portion of the adult population always has a disproportionately low footprint in property, because they're just starting out and have less money. By the time they get to be some of the oldest people alive, they tend to have the most money (savings works like that). As long as the new population wants to cram in to the same place that the previous population is (like in crowded cities), development is going to be a struggle and prices will go up. When the new population wants to move in to a suburb of Wichita Kansas, you'll find housing development and prices to be much more reasonable.

Basically, you don't get to demand where you want your new housing. If the demand is lumped onto a place where new housing is not affordable (or possible), it doesn't happen.

 

[mustafur]

Considering it's happening basically everywhere the link you can draw is the urbanisation of the population, Most people want to live in cities and the share of population that live in one is ever increasing, prices therefore have a solid foundation of demand this way.

 

[TenEightyOne]

Most people want to live in cities

That's so January 2020.

Big businesses (at least in the UK) are now wondering why they need to operate large central offices when they've suddenly been able to operate with wide-comms infrastructures using WFH. Business is going to work differently now, so commutes are going to work differently, and therefore people's location requirements will too.

 

[Eunos_Cosmo]

Developers do build housing for the non-rich, but you can't build housing the for the non-rich in the middle of San Francisco or Los Angeles. The youngest portion of the adult population always has a disproportionately low footprint in property, because they're just starting out and have less money. By the time they get to be some of the oldest people alive, they tend to have the most money (savings works like that). As long as the new population wants to cram in to the same place that the previous population is (like in crowded cities), development is going to be a struggle and prices will go up. When the new population wants to move in to a suburb of Wichita Kansas, you'll find housing development and prices to be much more reasonable.

Basically, you don't get to demand where you want your new housing. If the demand is lumped onto a place where new housing is not affordable (or possible), it doesn't happen.

Fair point...most of the country is not experiencing what the coasts are. I suppose my post should be directed at authorities within these coastal cities.

The issue I think is the urban planning priorities of a lot of the economic centers. I've been to planning commission hearings in San Francisco where it was apparent that the idea that you can plan/build too much office space vs residential space was not something that occurred to the commissioners. A researcher presented his findings (about how much office square footage was added to the metro vs residential) and the chair of the commission was dumbfounded and suggested out loud, "well maybe we should zone for more residential!"

I think there has been a clear political incentive for decades in most urban areas to build office space. Its a proven election strategy to "bring more jobs". It's a harder sell for the same politician to get elected by an electorate presumably already living there to strive to build more housing...the people there either probably don't care or willfully reject housing for NIMBY reasons. It's short-term expediency at the expense of long term viability/vitality of the city. So you get a perfect storm in cities like SF and Seattle where the needle has been pushed so hard for years/decades to build office space in addition to the problem of scarce build-able land. Not only that but you end up with the densest areas of many American cities being barren wastelands outside of peak office hours. I do think, though, that saying "well just move somewhere else" is not a particularly good answer. I really think a government (probably local) effort just to streamline the path of housing construction would go a long way to alleviate the housing crunch. There is evidence that it's happening....but we'll see. Ultimately, I feel like our current housing situation, especially on the coasts, is an unforced error, a result of poor planning and overly zealous approvals processes rather than any pure capitalist outcomes.

While it is nearly as expensive (though, a lot of that is due to foreign speculation rather than local issues) the city of Vancouver, I think, has done an exceptional job of designing its urban core towards the future. When I watch this and compare it to Seattle or San Francisco, (two American cities generally thought to have better urbanism than many other large American metros), the distance between them is enormous.



In any case, perhaps working from home will start to alleviate pressure on the hottest cities. The tech industry seems ripe for leaving. That's fine with me. I'll gladly take a San Francisco with an average economy. The ocean and mountains is not gonna get less beautiful.

 

[Danoff]

I've been to planning commission hearings in San Francisco where it was apparent that the idea that you can plan/build too much office space vs residential space was not something that occurred to the commissioners. A researcher presented his findings (about how much office square footage was added to the metro vs residential) and the chair of the commission was dumbfounded and suggested out loud, "well maybe we should zone for more residential!"

I think generally office space pays for itself a little easier (or at least, it used to). It's so odd because outside of city centers, residential leads commercial by a good ways. Nobody invests in a grocery store or McDonald's until the area has tons of people ready to shop. Even schools lag housing. It seems like urban development kinda flips the script, assuming that people will just find a way to get there (from outside). Office space also requires less infrastructure. If people live there, you need grocery stores, schools, playgrounds, tons of shopping, etc. But if nobody lives there, and just works there, there's not nearly as much infrastructure. As a result, your city can collect more tax revenue (and spend less).

I would definitely expect that if residential demand exists, that demand gets conveyed to city planners in the form of high $$ projects that can entice a change in mentality. But certainly, I think the assumption is that without the $$ behind it, why would it get built at all? "Affordable" housing so much less viable when land costs so much.

 

[Biggles]

Nothing to worry about:

https://www.cbc.ca/news/business/img-downgrades-outlook-global-economy-1.5625010

 

[TenEightyOne]

I would definitely expect that if residential demand exists, that demand gets conveyed to city planners in the form of high $$ projects that can entice a change in mentality. But certainly, I think the assumption is that without the $$ behind it, why would it get built at all? "Affordable" housing so much less viable when land costs so much.

What works (sometimes) in the UK is a demand for many projects to have a given percentage of "affordable housing". Suddenly the big building companies find that it is do-able after all. When it works (which is only sometimes) it has a positive effect. With that said... the planning system in the UK is broken and easily corruptible, so it doesn't always work like it should.

 

[Eunos_Cosmo]

What works (sometimes) in the UK is a demand for many projects to have a given percentage of "affordable housing". Suddenly the big building companies find that it is do-able after all. When it works (which is only sometimes) it has a positive effect. With that said... the planning system in the UK is broken and easily corruptible, so it doesn't always work like it should.

I'm not sold on the concept of affordable housing. I think if just more housing was built, more of it would become affordable. I realize in my area, that is not an opinion shared by most. I was working on a mixed use tower in the city of SF and the developer gave up on trying to make the numbers work (partly due to the affordable housing requirements) and actually switched the project to 100% hotel after it was already approved.

Then there's the stunningly corrupt labor unions...the largest housing project under review in the entire San Francisco area - a 13,000-unit project on former Navy land - has been killed because labor unions somehow had the power to kill it.

Lennar had run into strong opposition from building trades after refusing to sign a project-wide labor agreement that would have made it an all-union development. The Contra Costa Building Trades Council sought an agreement that was consistent with the city’s Concord First policy, which requires that developers hire 40% Concord residents, pay prevailing wages, hire and train veterans, and commit to approved apprenticeship programs.

The developers said that agreeing to an all-union job site would make the project infeasible, raising construction costs by $542 million and cutting the project’s profit margin from 17% to a loss.

Lennar wants to build an economically viable 13,000-unit housing project in a region with chronic housing shortages
Unions want the entire job to be done with union workers, even if it means the developer won't make a profit
City council votes with the union to compel Lennar to use 100% union labor
Lennar, to everyone's (???) surprise, says "hard pass" and bails.

Love this bit:

“We look at this as a victory,” he said. “We also look at it as an opportunity to get back to building this project by finding a master developer that will play by the rules the city of Concord has put in place. We are not going to sit on our thumbs. The Building Trades Council and the city will be working on finding a replacement for Lennar.”

Further negotiations would be pointless, he added — after a year at the bargaining table, the two sides were further apart than they were at the start.

“As time moved on, it became clear they were not interested in hiring a local workforce,” he said. “They were going to flood the project with out-of-area workers at lower wages. That was appallingly negligent, and we opposed that.”

Good luck finding a developer that will be willing to do a project of this scale (with the massive liability that involves) for zero reward.

For reference, that local workforce is paid incredibly stupid amounts of money (because they extort entire cities just like this example). I met a union electrician (he claimed to be mid-level) at a party that made $175,000 a year with no overtime.

In San Francisco, a project can be delayed 6 months and be subjected to additional review if a single resident files a complaint.

It's these kind of self-owns that the Bay Area just can't get enough of.

 

[Biggles]

Am I alone in wishing fervently that Facebook (& Zuckerberg) should get taken down a peg to two? They (he) are way, WAY too big for their boots.

https://www.bbc.com/news/technology-53262860

 

[Eunos_Cosmo]

So the fed is going to maintain the status quo for the foreseeable future. Next to zero interest rates, bond buying. Really makes me feel uneasy about the future. Asset prices are going to continue to inflate at a rate that well outpaces earnings. Stocks are getting to be tremendously overvalued, interest-based investments are returning nothing, and real estate is going into the sky - when the stock market crashes, I have a feeling real estate is going to really accelerate, as it will be the only return around. I think we are already at a point where housing is flat out unaffordable for many or even most Americans, especially in areas with strong economies. The longer the fed keeps the gas pedal slammed to the floor, the more distorted the real estate market is going to be and the steeper the divide between the haves and have nots will become. Seriously, when will it end? If mortgage rates were to hit zero (it seems possible) will real estate continue to appreciate? At what point will real estate be so expensive that nobody can afford it, even with no interest? Then what happens? If there's no headroom for appreciation (beyond tepid income growth, at that point) is it even an investment anymore? Then what happens? Not only that, but the fed probably couldn't even whisper about a rate increase without the stock market (at least) immediately imploding. Remember December 2018? A quarter-point rate hike sent the stock market tumbling 10%. The stock market basically has the fed held hostage. I can't help but feel we're in some sort of disinflationary death spiral - a perpetual feedback loop between the stock market and the Federal Reserve. And what will happen if we do have a calamity like the 2007/08 GFC? The Fed will have no options. The Federal reserve has operated on a reckless, short-sighted, "preserve/increase asset values at all cost" basis for pretty much as long as I've been alive. The economy is distorted beyond all historical precedent right now and it's hard to see a good outcome. The government has been meddling way too much for way too long to preserve and enhance the assets for a particular generation at the cost of everyone after them.

 

[GranTurNismo]

So the fed is going to maintain the status quo for the foreseeable future. Next to zero interest rates, bond buying. Really makes me feel uneasy about the future. Asset prices are going to continue to inflate at a rate that well outpaces earnings. Stocks are getting to be tremendously overvalued, interest-based investments are returning nothing, and real estate is going into the sky - when the stock market crashes, I have a feeling real estate is going to really accelerate, as it will be the only return around. I think we are already at a point where housing is flat out unaffordable for many or even most Americans, especially in areas with strong economies. The longer the fed keeps the gas pedal slammed to the floor, the more distorted the real estate market is going to be and the steeper the divide between the haves and have nots will become. Seriously, when will it end? If mortgage rates were to hit zero (it seems possible) will real estate continue to appreciate? At what point will real estate be so expensive that nobody can afford it, even with no interest? Then what happens? If there's no headroom for appreciation (beyond tepid income growth, at that point) is it even an investment anymore? Then what happens? Not only that, but the fed probably couldn't even whisper about a rate increase without the stock market (at least) immediately imploding. Remember December 2018? A quarter-point rate hike sent the stock market tumbling 10%. The stock market basically has the fed held hostage. I can't help but feel we're in some sort of disinflationary death spiral - a perpetual feedback loop between the stock market and the Federal Reserve. And what will happen if we do have a calamity like the 2007/08 GFC? The Fed will have no options. The Federal reserve has operated on a reckless, short-sighted, "preserve/increase asset values at all cost" basis for pretty much as long as I've been alive. The economy is distorted beyond all historical precedent right now and it's hard to see a good outcome. The government has been meddling way too much for way too long to preserve and enhance the assets for a particular generation at the cost of everyone after them.

God bless man, I don't know how you (or anyone) can get by living in San Francisco. I saw something recently that the average Bay Area home price is $925,000, which is over 3x the national average. Even if you're making close to 200k per annum, buying an "average" house seems like quite a cost. Yet people think $500k for a 3 bedroom SFH in NJ is expensive.

 

[Keef]

Yet people think $500k for a 3 bedroom SFH in NJ is expensive.

Ohioan here. You're insane if you don't think a 3-bedroom house for $500k is expensive. Here in the Dayton metro that either gets you up to 5 bedrooms or a a couple acres 30 minutes from downtown.

 

[Eunos_Cosmo]

Scarcity and overindulgent regulation and a booming economy have put pressure on the housing market here for sure, but I don't think the rest of the country will be immune to accelerating (as in divergent from income growth) real estate prices in the next 10 years. Until covid, it seemed like the bay area had hit some sort of ceiling in 2018, now there is a total frenzy over what is left. Every time I go to see a house (which now requires financial disclosures and scheduling with an agent, not just showing up) there is a scheduled viewing immediately before and immediately after. It's gone completely bananas during Covid. And that's with California looking at a net population loss for the first time ever! It's truly wild.

 

[Keef]

as in divergent from income growth

It's just starting in the rest of the country. I mentioned how inexpensive Dayton is...but even our prices have increased around 40% since 2017. I'm not sure how Covid will effect it into the future but over summer it typical trend continued of middle-class homes being on the market for less than a day. Sellers could basically throw a price at the wall and it would stick almost instantly.

 

[Danoff]

So the fed is going to maintain the status quo for the foreseeable future. Next to zero interest rates, bond buying. Really makes me feel uneasy about the future. Asset prices are going to continue to inflate at a rate that well outpaces earnings. Stocks are getting to be tremendously overvalued, interest-based investments are returning nothing, and real estate is going into the sky - when the stock market crashes, I have a feeling real estate is going to really accelerate, as it will be the only return around. I think we are already at a point where housing is flat out unaffordable for many or even most Americans, especially in areas with strong economies. The longer the fed keeps the gas pedal slammed to the floor, the more distorted the real estate market is going to be and the steeper the divide between the haves and have nots will become. Seriously, when will it end? If mortgage rates were to hit zero (it seems possible) will real estate continue to appreciate? At what point will real estate be so expensive that nobody can afford it, even with no interest? Then what happens? If there's no headroom for appreciation (beyond tepid income growth, at that point) is it even an investment anymore? Then what happens? Not only that, but the fed probably couldn't even whisper about a rate increase without the stock market (at least) immediately imploding. Remember December 2018? A quarter-point rate hike sent the stock market tumbling 10%. The stock market basically has the fed held hostage. I can't help but feel we're in some sort of disinflationary death spiral - a perpetual feedback loop between the stock market and the Federal Reserve. And what will happen if we do have a calamity like the 2007/08 GFC? The Fed will have no options. The Federal reserve has operated on a reckless, short-sighted, "preserve/increase asset values at all cost" basis for pretty much as long as I've been alive. The economy is distorted beyond all historical precedent right now and it's hard to see a good outcome. The government has been meddling way too much for way too long to preserve and enhance the assets for a particular generation at the cost of everyone after them.

The house I owned in CA was originally purchased for about $30k. Today (I don't own it anymore) it is worth $1.2M according to Zillow. Real estate isn't coming back down, the value of the dollar is. In another 20 years I wouldn't be surprised if it was more than $10M.

 

[ROAD_DOGG33J]

@Danoff Would that mean that banks, insurance companies, and mortgage REITs should be doing well in the future?

 

[Eunos_Cosmo]

@Danoff Would that mean that banks, insurance companies, and mortgage REITs should be doing well in the future?

Banks will probably be doing really well (on paper) in the immediate future. The Fed has just allowed them to resume share buybacks. I picked up some JPMC and BOA at the opening bell.

On the other hand, I'm expecting a tidal wave of mortgage delinquencies and possibly foreclosures when the moratorium expires. They will let it expire eventually, right?

 

[ROAD_DOGG33J]

Banks will probably be doing really well (on paper) in the immediate future. The Fed has just allowed them to resume share buybacks. I picked up some JPMC and BOA at the opening bell.

On the other hand, I'm expecting a tidal wave of mortgage delinquencies and possibly foreclosures when the moratorium expires. They will let it expire eventually, right?

I'm guessing if property values keep going up, then those industries should be doing relatively well. It would also include other REITs as well. Apartment REITs would probably be a safe bet.

 

[Biggles]

Chinese economy to overtake US 'by 2028' due to Covid

The inept handling of the Covid crisis in the US will accelerate the point at which China overtakes the US to become the world's largest economy.


https://www.bbc.com/news/world-asia-china-55454146

 

[Biggles]

According to Bloomberg, Elon Musk has overtaken Jeff Bezos to become the world's richest man.

Could this be a bubble? Tesla cranked out about 500,000 cars last year, about as many as General Motors makes in a month. But despite that, Tesla is worth more than Ford, Honda, BMW, General Motors, Daimler, Volkswagen and Toyota put together.

 

[mustafur]

Tesla is valued beyond what it would be even if it was the largest car company in the world, a Bubble is an understatement.

 

[Biggles]

Tesla is valued beyond what it would be even if it was the largest car company in the world, a Bubble is an understatement.

Maybe ... but I'm still confident my tulip bulb investments will pay off in the long run ...

 

[Keef]

Could this be a bubble? Tesla cranked out about 500,000 cars last year, about as many as General Motors makes in a month. But despite that, Tesla is worth more than Ford, Honda, BMW, General Motors, Daimler, Volkswagen and Toyota put together.

Tesla is the electric car market. Nobody else is even close to competing...legacy OEMs aren't within five years of competing. Nobody aspires to buy a Ford or Nissan EV, not even one from BMW or Mercedes. The Porsche is arguably desirable, but what's not arguable is that it's a considerably worse car.

But Tesla doesn't just make cars, they've got a plan already well in motion to make the batteries too. The best batteries on the market. So good and so many that if legacy OEMs don't buy batteries from Tesla they simply won't be able to compete in the EV market.

Tesla caught multiple industries with their pants down and is absolutely trouncing them all. Hell, their sister company SpaceX is trouncing NASA...how the hell is Ford or Mercedes supposed to compete with marketing like that? They can't. They won't. Tesla will continue to dominate the EV market for another decade, write that down. And I don't doubt that new companies like Rivian and Lucid will find a comfortable spot in the market ahead of legacy OEMs, particularly Rivian who is offering fully fledged products that nobody else does yet.

Tesla isn't a bubble. Tesla is just getting started. They did all this with only one of three Gigafactories operating.

Edit: The China Gigafactory was fully operational as of spring 2020.

 

[mustafur]

Tesla is the electric car market. Nobody else is even close to competing...legacy OEMs aren't within five years of competing. Nobody aspires to buy a Ford or Nissan EV, not even one from BMW or Mercedes. The Porsche is arguably desirable, but what's not arguable is that it's a considerably worse car.

But Tesla doesn't just make cars, they've got a plan already well in motion to make the batteries too. The best batteries on the market. So good and so many that if legacy OEMs don't buy batteries from Tesla they simply won't be able to compete in the EV market.

Tesla caught multiple industries with their pants down and is absolutely trouncing them all. Hell, their sister company SpaceX is trouncing NASA...how the hell is Ford or Mercedes supposed to compete with marketing like that? They can't. They won't. Tesla will continue to dominate the EV market for another decade, write that down. And I don't doubt that new companies like Rivian and Lucid will find a comfortable spot in the market ahead of legacy OEMs, particularly Rivian who is offering fully fledged products that nobody else does yet.

Tesla isn't a bubble. Tesla is just getting started. They did all this with only one of three Gigafactories operating.

Edit: The China Gigafactory was fully operational as of spring 2020.

Tesla is doing all the R&D sure but from a functional business standpoint they haven't had to worry about that for
most of it's existence as it is being pumped by investors rather then customers.

If you have seen how F1 works you can see that technology once learned can't be unlearned, even with patents and non disclosure agreements hiring a few staff from Tesla and reverse engineering can allow the competition to close up at the speed of light, the Market still hasn't moved in the direction for the competition to take it seriously yet so it's understandable that Tesla looks soo stupidly far ahead, they all have responsibility to their existing business.

 

[ROAD_DOGG33J]

I read that one of the factors is that tesla fans don't sell the stock. They hold on to it and never let it go.