Up to May of this year, Statista’s Niall McCarthy notes that the state has seen more than $6 billion in total marijuana sales since the industry was given the green light.
First off, they are not allowed any tax deductions or credits for business expenses which can mean effective federal tax rates of as high as 90 percent. Hemp producers are luckier since recent changes to the law now allows them to deduct ordinary business expenses for tax purposes on condition that their products contain no more than 0.3 percent THC.
Second, most banks and financial institutions will not touch them with a 10-foot pole, meaning they have to pay their taxes in cash and not through checks or electronic means.
Yet, they continue to tough it out, making an important mark where they are officially recognized. According to the Tax Policy Center, states with marijuana taxes are obligated to put a portion of their funds toward important social programs ranging from education programs in Colorado and Nevada to administrative costs in California and crime reduction in Alaska.
Luckily, the IRS is trying to get a handle on the situation and hopefully, cannabis companies will soon be able to enjoy the same benefits that other industries take for granted.
via ZeroHedge News http://bit.ly/2WIwjVx Tyler Durden
Generally, when discussing air-defense systems here, we are referring to Russian devices that have become famous in recent years, in particular the S-300 (and its variants) and the S-400. Their deployment in Syria has slowed down the ability of such advanced air forces as those of the United States and Israel to target the country, increasing as it does the embarrassing possibility of having their fourth- or fifth-generation fighters shot down.
Air-defense systems capable of bringing down fifth-generation aircraft would have a devastating effect on the marketability and sales of US military hardware, while simultaneously boosting the desirability and sales of Russian military hardware. As I have often pointed out in other analyses, Hollywood’s role in marketing to enemies and allies alike the belief that US military hardware is unbeatable (with allies being obliged to buy said hardware) is central to Washington’s strategies for war and power projection.
As clashes between countries in such global hot spots as the Middle East increase and intensify, Hollywood’s propaganda will increasingly struggle to convince the rest of the world of the continued efficacy and superiority of US weapons systems in the face of their unfolding shortcomings.
The US finds itself faced with a situation it has not found itself in over the last 50 years, namely, an environment where it does not expect to automatically enjoy air superiority. Whatever semblance of an air defense that may have hitherto been able to pose any conceivable threat to Uncle Sam’s war machine was rudely dismissed by a wave of cruise missiles. To give two prime examples that occurred in Syria in 2018, latest-generation missiles were intercepted and shot down by decades-old Russian and Syrian systems. While the S-400 system has never been employed in Syria, it is noteworthy that the Serbian S-125 systems succeeded in identifying and shooting down an American F-117 stealth aircraft during the war in the Balkans.
There is a more secret aspect of the S-400 that is little disclosed, either within Russia itself or without. It concerns the S-400’s ability to collect data through its radar systems. It is worth noting Department of Defense spokesman Eric Pahon’s alarm over Turkey’s planned purchase of the S-400:
“We have been clear that purchasing the S-400 would create an unacceptable risk because its radar system could provide the Russian military sensitive information on the F-35. Those concerns cannot be mitigated. The S-400 is a system built in Russia to try to shoot down aircraft like the F-35, and it is inconceivable to imagine.
Certainly, in the event of an armed conflict, the S-400’s ability to shoot down fifth-generation aircraft is a huge concern for the United States and her allies who have invested so heavily in such aircraft. Similarly, a NATO country preferring Russian to American systems is cause for alarm. This is leaving aside the fact that the S-400 is spreading around the world, from China to Belarus, with dozens of countries waiting in line for the ability to seal their skies from the benevolent bombs of freedom. It is an excellent stick with which to keep a prowling Washington at bay.
But these concerns are nothing when compared to the most serious threat that the S-400 poses to the US arms industry, namely, their ability to collect data on US stealth systems.
Theoretically, the last advantage that the US maintains over her opponents is in stealth technology. The effectiveness of stealth has been debated for a long time, given that their costs may actually outweigh their purported benefits. But, reading between the lines, what emerges from US concerns over the S-400 suggests that Moscow is already capable of detecting US stealth systems by combining the radars of the S-400 with those of air-based assets, as has been the case in Syria (despite Washington’s denials).
The ability of the S-400 to collect data on both the F-35 and F-22 – the crown jewels of the US military-industrial complex – is a cause for sleepless nights for US military planners. What in particular causes them nightmares is that, for the S-400 to function in Turkey, it will have to be integrated into Turkey’s current “identification friend or foe” (IFF) systems, which in turn are part of NATO’s military tactical data-link network, known as Link 16.
This system will need to be installed on the S-400 in order to integrate it into Turkey’s defensive network, which could potentially pass information strictly reserved for the Russians that would increase the S-400’s ability to function properly in a system not designed to host such a weapon system.
The final risk is that if Turkey were to fly its F-35s near the S-400, the Link 16 system would reveal a lot of real-time information about the US stealth system. Over time, Moscow would be able to recreate the stealth profile of the F-35 and F-22, thereby making pointless Washington’s plans to spend 1.16 trillion dollars to produce 3,000 F-35s.
What must be remembered in our technological age is that once the F-35’s radar waveform has been identified, it will be possible to practice the military deception of recreating fictitious signals of the F-35 so as to mask one’s own aircraft with this shape and prevent the enemy’s IFF systems from being able to distinguish between friend or foe.
Of particular note is the active cooperation between China and Russia in air-defense systems. The S-400 in particular has already been operational in China for several years now, and it should be assumed that there would be active information sharing going on between Moscow and Beijing regarding stealth technology.
It turns out that the S-400 is a weapon system with multiple purposes that is even more lethal than previously imagined. It would therefore not be surprising that, were S-400s to be found in Cuba and Venezuela, Washington’s bellicose rhetoric against these two countries would come to an abrupt halt.
But what US military planners fear more than the S-400 embarrassing their much-vaunted F35 and F22 is the doubts they could raise about the efficacy of these stealth aircraft in the minds of allies and potential buyers. This lack of confidence would deal a mortal blow to the US arms industry, a threat far more real and devastating for them than a risk of conflict with Moscow or Beijing.
via ZeroHedge News http://bit.ly/31AXzsM Tyler Durden
The latest Cushman & Wakefield commercial real estate report shows demand for US industrial space collapsed 60% on year in 1Q19, reflecting the global synchronized decline and the deepening trade war.
Cushman & Wakefield’s economists warned President Trump’s trade war is unraveling complex supply chains around the world that have led to a slump in demand for industrial space. They also said the restocking trend by importers forced by the tariffs is likely over. There is also another possibility that the slowdown could be linked to some seasonal factors, the economist said.
“It is possible that the trade dispute is causing disruptions to supply chains which are causing demand for industrial space to slow. Another possibility is companies may have overstocked before the implementation of tariffs in 2018. Seasonality, a general slowing in the global economy and lagging supply may also have been the main culprits,” economists Kevin Thorpe and Rebecca Rockey said in the report.
The report said world export volumes are expected to have no growth this year, dropping from a 5% annual expansion rate in the last two years.
To best visualize the global slowdown is YoY changes in global trade as measured by the IMF’s Direction of Trade Statistics, courtesy of BMO’s Ian Lyngern. It shows the collapse in global exports as broken down into three categories:
Exports to the world (weakest since 2009),
Exports to advances economies (also lowest since 2009), and
Exports to the European Union (challenging 2009 lows).
President Trump slapped 25% tariffs on $200 billion of Chinese goods last month. Trump then threatened to slap tariffs on another $300 billion of Chinese exports if China’s leader Xi Jinping doesn’t meet him at the 2019 G20 Osaka summit in Japan. If the meeting doesn’t occur, this could mean a full-blown trade war would be in effect, would spark a global trade recession and lead to a further collapse in demand for US industrial space.
The economist noted that the trade war has driven up construction costs and has damaged global business confidence for the year.
“There are also anecdotal reports in the US that construction costs for steel, aluminum, cabinetry, flooring, etc, are being driven up as China is ‘taken out’ as a supplier… Although it is challenging to parse out the impact, it is not difficult to conclude that the longer the trade war drags out the more disruptive it will be,” the report said.
Separately, the trade war has left corporate America uncertain about the future by pulling back investments, Eugene Seroka, executive director of the Port of Los Angeles, said.
Tariffs are having the most significant impact on Los Angeles and Long Beach ports, the nation’s busiest container ports, which both handle about 47.5% of US containerized trade with China. But it’s not just the ports that are feeling the pressure from the trade war, trucking, railroads, warehousing, construction, manufacturing, and farming, have also been impacted. About one million jobs related to international trade around the port are also in question as the trade war continues to deepen.
As the US economy cycles down through summer with the threat of a full-blown trade war, industrial space demand is likely to drop further, which could suggest that the commercial real estate bubble is about to burst.
via ZeroHedge News http://bit.ly/2MPxfI7 Tyler Durden
As discussed earlier, and as both Bank of America and JPM explained, the biggest risk for the market next week is if the Fed not only doesn’t cut – the market assigns a very low probability to such a “pre-emptive” move – but fails to signal an aggressive dovish reversal in the form of a rate cut in July. And yet, despite its upbeat outlook – it still expects the S&P to close the year at 3,000, Goldman’s strategists are certainly taking the over on how hawkish the Fed will sound next week.
As Goldman’s chief economist Jan Hatzius writes, the bank expects “unchanged” policy at the June 18-19 FOMC meeting and sees the subjective odds of a June cut at only 10%. More importantly, while Goldman looks for a dovish tilt to the proceedings it won’t be nearly enough to appease markets that have aggressively priced rate cuts in the fall.
Barring an unlikely surprise on the funds rate, we expect the market to focus on four key developments:
the statement’s policy stance/balance of risks paragraph,
the number of participants projecting cuts in the Summary of Economic Projections (SEP),
the extent of dovish changes to the statement and economic forecasts, and
the tone of Powell’s press conference.
In Goldman’s view, the main reason why the Fed is poised to disappoint markets is simply that not enough has changed to warrant a clear signal of an upcoming cut. Indeed, “since the March SEP meeting, stock prices are higher, the unemployment rate fell to a 50-year low, consensus growth forecasts are unchanged, and the very tariffs on Mexico that prompted the latest calls for rate cuts have been taken off the table.” Not only that, but the economy continues to chug along largely as expected: outside of May payrolls, the growth data still look decent: Goldman’s Q2 GDP tracking estimate has rebounded to +1.6%, Atlanta Fed GDPNow is +2.1%, and the bank’s own tracker of private final demand is at an even healthier pace (+2.8%).
Rather than Goldman’s standard “Then and Now” table, the chart below “plots the setup for next week’s meeting across three dimensions, as well as their averages ahead of three major dovish shifts: September 2007 (at which the Fed abandoned the hiking bias and cut 50bps in response to subprime turmoil), September 2010 (formally signaled QE2), and March 2016 (scuttled the hiking cycle until global risks abated). Here, Hatzius also shows the three-month evolution of these four variables: stock prices, IG credit spreads, and consensus GDP growth.
What is remarkable, is that the June 2019 values show little resemblance ro prior dovish reversals: “risk assets performed much better, and annual GDP forecasts are little changed, vs. -0.3pp on average across the three alternate episodes.“
So how do one reconcile this with the outspoken consensus forecasting major dovish changes next week? According to Hatzius, one possibility is that most salient changes over the last 6 weeks “relate to investor sentiment and global news headlines” instead of the actual economy and market conditions. If so, there may not be sufficient reasons to expect or implement changes in the path of monetary policy, Goldman concludes in what may be a major disappointment for the market bulls.
So what about all those predictions of an upcoming recession? Here, too, Goldman is skeptical and writes that it remains to be seen whether US growth will fall below potential in the back half of the year because of the trade war and related uncertainty. But, as shown in the first chart above, outside of May payrolls, the growth data still look decent —particularly the solid rise and significant upward revisions in Friday’s retail sales report.
Taken together, Goldman’s chief economist thinks Fed officials “will view recent data as evidence that growth has indeed slowed from its brisk mid-2018 clip (of 3.5-4.0%) but remains at a healthy pace (of around 1.75%-2.0%).“
Will this be sufficient to sway those expecting a major dovish concession by the Fed? Probably not, and they will point to the recent slowdown in inflation. And while inflation it has undoubtedly been soft (four consecutive core CPI misses, core PCE inflation hovering just above 1.5%), the Committee has gone out of their way recently to attribute the weakness to transitory factors, Hatzius writes. In fact, the FOMC has emphasized the Dallas Fed trimmed-mean measure—which based on CPI and PPI source data is similar to its levels at the March and May meetings (in fact, slightly higher at 1.99%).
Furthermore, as shown in Exhibit 4, the Dallas Fed measure is consistent with core inflation of 1.75%, and it has also more clearly trended up in recent years. Such well-measured inflation (also adjusted for its average gap vs. core PCE) is consistent with above-target inflation for the first time since 2010 (of around 2.5%).
Looking ahead, the inflationary outlook is even more conflicted, and Goldman believes core PCE inflation is on its way back to 2% by late 2019, especially given the 0.3-0.4% boost from tariffs that is expected to hit shortly after Trump hikes tariffs on the remaining $300BN in Chinese imports. On the other hand, don’t expect a hike either:
But even if inflation has resurfaced as a predominant concern on the Committee in recent weeks, now would be a curious time to launch a reflation campaign, given vocal pressure from the White House to cut rates and the fact that the framework review itself won’t be completed for another 6+ months.
But while all this is known, why is the market pricing in roughly 4 rate cuts by the end of 2020, and why does Goldman refuse to drink the Dove-Aid? Playing Devils’ advocate, Hatzius explains that “one common pushback to our view is that if the Fed fails to deliver the rate cuts now priced, financial conditions will tighten and force the Fed’s hand anyway” To this, Goldman counters that it expects Fed officials to be “very careful not to deliver an unconditional hawkish message, but to continue emphasizing that they will respond to shocks as needed to attain their mandate.” And so, with hikes very unlikely (for now, although the market has started to price in rising rates in 2020 and early 2021), this would keep the market priced for a reasonable amount of easing.
Meanwhile, even if the Fed does shock the market in the opposite direction, and the Committee disappoints markets this summer and Treasury yields rebound sharply, Goldman’s statistical estimates, identified via changes in bond yields around FOMC meetings, suggest that a 50bp exogenous rise in short-term rate expectations tightens our FCI by 30-40bp on average. This is not insignificant, but neither is it dramatic when measured against the last two major FCI tightening episodes, according to Goldman.
Some examples: the index moved up by 150bp in 2018 Q4, and even that change affected only the expected pace of monetary tightening as opposed to producing outright increases in accommodation.
Here Goldman brings up another key consideration: the market has recently been even more inaccurate in its predictions than the notoriously terrible at forecasting Federal Reserve.
Case in point: market pricing implies four rate cuts by the end of next year, a sharp divergence to the FOMC’s median projection at that horizon (one hike as of March). Goldman next compares the policy rate paths implied by the median SEP dot with those of Fed funds futures. And over the seven years that the Committee has tracked and published their projections (an admittedly small sample), the bank finds that the Fed’s two-year-ahead forecasting performance has actually been somewhat better than the market’s: more accurate forecasts in both 2012 and in 2018, a comparable forecast in 2014, and a less accurate one in 2016.
Which brings us to perhaps the biggest concern of all: will the Fed’s own rate cuts telegraph that a recession is about to commence? Goldman’s answer is that history suggests that the hurdle for mid-cycle easing is rather high (perhaps as opposed to late-cycle, as a recession looms anyway). The 1990s saw two such episodes, in 1995 and 1998, the former of which represented a normalization in policy from clearly restrictive levels (from 6.0% to 5.25% from July 1995 to February 1996). At the same time, pre-emptive ”insurance” cuts of 1998 seem more relevant today, as interest rates are low, global risks appear to be rising, and US data has shown only pockets of weakness. Chairman Greenspan said at the time, “There are only limited hard data that suggest any loss of momentum in the current expansion… The crucial development… is that we are observing an important shift in attitudes toward risk… a change in psychology clearly is what we are observing. The opening up of risk spreads is a very significant indication of increased risk aversion.”
But, Hatzius observes, just as today’s FCI evolution and growth outlook look very different from those that preceded the Fed’s dovish pivots in 2007, 2010, and 2016, the tightening in credit spreads in summer 1998 was nearly 10 times as large as that of recent experience (+102bp in the three months leading up to the Sep ‘98 meeting vs. +11bps currently, US IG). And even in that instance (1998), fixed income markets too aggressively priced the Fed’s intentions: markets priced more than a 125bp cumulative decline in Fed Funds, whereas the Fed only cut by 75bps and resumed the hiking cycle less than a year later.
The bottom line, according to Goldman, is that:
“…while markets are aggressively priced for rate cuts, we believe the dovish shift indicated by Fed commentary has been more marginal in nature. For example, we take much less signal than other commentators and market participants from Chair Powell’s promise that “as always, we will act as appropriate to sustain the expansion.” In our view, this was not a strong hint of an upcoming cut but was simply meant to provide reassurance that the FOMC is well aware of the risks.
Additionally, Hatzius sees the “as always” caveat declaring an ever-present ability to ease policy if the situation warrants—as opposed to an imminent rate cut this summer, and furthermore doubts it is a coincidence that New York Fed President John Williams used the same language two days later: “My baseline is a very good one but at the same time we obviously, as always, need to be prepared to adjust our views.”
In sum, and broadening the analysis to all participants that have offered a view on monetary policy since the May meeting, Goldman – unlike the majority of the market – has trouble finding more than a couple outright endorsements of easier policy.
The importance of this caveat is also visible in the history of the FOMC statement itself, Hatzius writes, and shows in the next chart that “act as appropriate” / “act as needed” is a strong signal of imminent policy change (in contrast to, “monitor/closely monitoring,” which has been used over 30 times since 2010 alone). For the Fed-watching pedants, since 1999, Goldman has found only four examples of “as needed” or synonymous verbiage that did not signal a policy action at the upcoming meeting, out of 34 meetings in which this language was used to explain the policy outlook. In each of these four exceptions, the statement included strongly worded caveats that leaned in the other direction (slowing “aggregate demand” in June 2006 and the “uncertain” inflation outlook in April, June, and August 2008). This may underscore just how important Powell’s and Williams’s “as always” caveats truly are.
One final semantic note: when the “as needed” language includes a qualification (that leans against the policy bias), Goldman has found that since 1999, there is only one instance where the Committee followed through at the next meeting, and those were truly exceptional circumstances (Lehman Brothers bankruptcy in September/October 2008).
So unless a major bank defaults in the next few days, Goldman is confident that the odds of a major dovish signal by the Fed are virtually nil, and in that case, should Trump fail to strike a trade war deal with Xi Jinping at the G-20, then the worst case scenario as laid out by Bank of America…
… is in play, which to those who may have missed it, is the following:
… the worst possible outcome would be if there is a 1) a hawkish Fed surprise and 2) no Deal at the G-20, which would send the S&P below 2,650, or potentially resulting in a 12% drop in the market, while slamming 10Y yields to 1.50% and helping gold rise above its 5 year breakout zone as the VIX surges.
In short: if Goldman is right (and that’s a big if), brace for market correction.
via ZeroHedge News http://bit.ly/2WM2wQS Tyler Durden
Total credit card debt among American consumers jumped 29% since 2015, reaching a whopping $807 billion in 1Q19, according to the latest Experian data. In the past year, as the economy cycles down, overall credit card debt rose 6%.
More than 60% of Americans used credit cards for basic purchases in 1Q19. That’s an 11% increase when compared to 1Q16, and a 3% increase from 1Q18.
The average American carries four credit cards with a balance of $6,028.
Experian said all 50 states plus Washington, DC, saw an increase in its average credit card debt on a YoY basis.
Hawaii had an average credit card debt increase of 3.4% over the past year, experienced the most significant growth in credit card usage among any state.
Experian said the average credit card debt in Hawaii is approximately $6,500, which is $500 more than the national average.
Separately, a report from WalletHub suggests why Hawaiians are increasingly using their credits cards. The report collected data from 28 key indicators of economic performance and growth from the island state, determined its economy is the worst in the country because of slow GDP growth, low exports per capita, and relatively few tech jobs.
US Bankruptcy Court District of Hawaii reported last week that the number of Hawaiians filing for bankruptcy in May jumped by double digits over the same month the previous year. May cases showed a 14.3% increase from 2018, with 144 cases filed last month as compared to 126 cases in May last year. May’s readings are the highest since 2014, a sign that the consumer is experiencing financial stress.
Some of the stress is due to massive student loan debt, the housing affordability crisis, and out of control living costs.
Growth in student loan debt is expected to outpace mortgage debt in the state in the near term. Student debt also exceeds credit card debt.
Hawaii ranked 26th in the country for its household income, even though the cost of living is the highest in the country.
The sobering reports come as travel experts warn Hawaii could see an imminent downturn, as tourism dollars are expected slow and the labor market softens.
Americans, and more importantly, Hawaiians, continue to drown even deeper in debt as the economy cycles down.
via ZeroHedge News http://bit.ly/2KjuWeh Tyler Durden
We are living in a time of increasing domestic tension. Some of it stems from the presidency of Donald Trump. Another part of it is various advocacy groups on both sides of the political spectrum demanding one cause or another. But nearly totally ignored is how growing government control over our lives, along with the betrayal of constitutional principles, contributes the most to domestic tension.
Let’s look at a few examples…
Think about primary and secondary schooling. I think that every parent has the right to decide whether his child will recite a morning prayer in school. Similarly, every parent has the right to decide that his child will not recite a morning prayer. The same can be said about the Pledge of Allegiance to our flag, sex education and other hot-button issues in education. These become contentious issues because schools are owned by the government.
In the case of prayers, there will either be prayers or no prayers in school. It’s a political decision whether prayers will be permitted or not, and parent groups with strong preferences will organize to fight one another. A win for one parent means a loss for another parent. The losing parent will be forced to either concede or muster up private school tuition while continuing to pay taxes for a school for which he has no use. Such a conflict would not arise if education were not government-produced but only government-financed, say through education vouchers. Parents with different preferences could have their wishes fulfilled by enrolling their child in a private school of their choice. Instead of being enemies, parents with different preferences could be friends.
People also have strong preferences for goods and services. Some of us have strong preferences for white wine and distaste for reds while others have the opposite preference — strong preferences for red wine. Some of us love classical music while others love rock and roll music. Some of us love Mercedes-Benz while others love Lincoln Continentals. When’s the last time you heard red wine drinkers in conflict with white wine drinkers? Have you ever seen classical music lovers organizing against rock and roll lovers or Mercedes-Benz lovers in conflict with Lincoln Continental lovers?
People have strong preferences for these goods just as much as they may have strong preference for schooling. It’s a rare occasion, if ever, that one sees the kind of conflict between wine, music and automobile lovers that we see about schooling issues. Why? While government allocation of resources is a zero-sum game — one person’s win is another’s loss — market allocation is not. Market allocation is a positive-sum game where everybody wins. Lovers of red wine, classical music and Mercedes-Benz get what they want while lovers of white wine, rock and roll music and Lincoln Continentals get what they want. Instead of fighting one another, they can live in peace and maybe be friends.
It would be easy to create conflict among these people. Instead of market allocation, have government, through a democratic majority-rule process, decide what wines, music and cars would be produced. If that were done, I guarantee that red wine lovers would organize against white wine lovers, classical music lovers against rock and roll lovers and Mercedes-Benz lovers against Lincoln Continental lovers.
Conflict would emerge solely because the decision was made in the political arena. Again, the prime feature of political decision-making is that it’s a zero-sum game. One person’s win is of necessity another person’s loss. If red wine lovers win, white wine lovers would lose. As such, political allocation of resources enhances conflict while market allocation reduces conflict. The greater the number of decisions made in the political arena, the greater the potential for conflict. That’s the main benefit of limited government.
Unfortunately, too many Americans want government to grow and have more power over our lives. That means conflict among us is going to rise.
via ZeroHedge News http://bit.ly/2wRV4UT Tyler Durden
But while somebody will inevitably be left holding the bag when the bubble bursts, for now, at least, the inexorable rise in American home prices has bequeathed an outsize benefit on at least one group of people: American homeowners who were stuck with underwater mortgages following the last housing bust.
However, even with average national home values back above their pre-crisis highs, CoreLogic’s most recently quarterly survey of national homeowner equity found that there are still 2.2 million homes underwater in the US – a sign of just how bad the last bubble was, and a warning for where we might be headed.
The percentage of homes with underwater mortgages in the US has shrunk between Q4 2018 and Q1 2019 by a full percentage point to just 4% of all mortgaged properties (or just 2.2 million homes). On a YoY basis, negative equity fell 11% from 2.5 million homes, or 4.7% of all mortgaged properties.
However, in terms of national aggregate value, negative equity climbed slightly to approximately $304.4 billion at the end of the first quarter of 2019, an increase of $2.5 billion, from $301.9 billion in the fourth quarter of 2018.
To be sure, this represents a massive shift from the final quarter of 2009, when negative equity peaked at 26% of all mortgaged residential properties.
The national aggregate value of negative equity was approximately $304.4 billion at the end of the first quarter of 2019. This is up QoQ by approximately $2.5 billion, from $301.9 billion in the fourth quarter of 2018. Over the full year, the average homeowner gained approximately $6,400 in equity. Nevada homeowners saw the highest increase, with an average of $21,000 (likely thanks to that flood of California refugees fleeing to Sun Belt states for more affordable lifestyles.
Some of the frothiest housing markets (think San Francisco and the rest of the Bay Area) are now the least burdened by negative equity. But it’s almost more surprising that even in San Francisco, still nearly a full 1% (0.7%) of mortgaged properties are underwater, though that is the lowest rate in the nation. The scars of the housing crisis are even more visible in some of the hardest hit markets, despite the torrid recovery: Las Vegas (4.7%), Chicago (8.7%) and Miami (10%) still have among the highest rates of underwater mortgages in the country.
Either way, with home prices at such unaffordable level, homeowners who suffered through the crisis might be thinking one of two things: Those who were underwater but have seen their equity miraculously right-sized might be so amazed by the turnaround in their fortunes, that they might soon start seeking buyers, hoping to get out ahead (and possibly downsize) before the whole thing comes crashing down again.
And those whose homes are still under might finally be ready to cut their losses, before another down turn drags them all the way back to square one.
via ZeroHedge News http://bit.ly/31EvvF5 Tyler Durden
It’s been well over a year since the then-United States Secretary of Defense Jim Mattis accused Russia and China of being “revisionist powers” each working its way toward making a power grab on the world stage and announced that the U.S. would be shifting its international relations focus away from fighting terrorism and instead prioritize what Mattis referred to as a “great power competition.” Now, 17 months later, it looks like Mattis’ nightmares are coming true as Russia and China have increasingly worked together in defiance of the Trump administration in a kind of diplomatic ‘marriage of convenience’.
Just this month, Chinese President Xi Jinping made his eighth official visit to Russia in a trip highly publicized in both Russian and Chinese media. “This year marks the 70th anniversary of our diplomatic ties and China’s ties with Russia are deepening at a time of profound change in the global geopolitical landscape,” remarked former Chinese ambassador to Britain Ma Zhengang, as quoted by the South China Morning Post.
One of the most current examples of this newly strengthened relationship between Beijing and Moscow is a new joint venture between state-owned shipping corporations in Russia and China to create a “Polar Silk Road” in the Arctic Sea. a year ago, officials in Beijing announced that China would be pursuing investment across the Arctic Route to encourage commercial shipping through the northern passage as a part of the country’s Belt and Road Initiative. Belt and Road is a massive undertaking involving investments programs worth trillions of dollars, which will go toward connecting Asia and Europe by sea, rail, and road to promote more trade between the continents.
This week, reporting by the Wall Street Journal this week tells us that “China is breaking into Arctic transport through a joint venture between the country’s biggest ocean carrier, Cosco Shipping Holdings Co., and its Russian counterpart PAO Sovcomflot to move natural gas from Siberia to Western and Asian markets.” Both China and Russia are members of the Arctic Council, which the Wall Street Journal describes as “an intergovernment forum […] which considers development issues and sailing rights as the polar ice recedes” before going on to say that China, in particular, has “made investment [in Arctic shipping lanes] a priority to advance its energy and shipping interests”.
The new venture will ship liquefied natural gas from central northern Siberia’s gargantuan Yamal LNG project to a laundry list of destinations including Northern Europe, Japan, South Korea, and China. The initiative will begin with a fleet of a dozen ice-breaking tankers, and Cosco’s China Shipping LNG Investment Co. will reportedly operate another nine tankers.
“We [China] imported about 57 million tons of LNG last year and we are looking for a steady supply of around four million a year coming from Yamal,” a Chinese shipping executive told the Wall Street Journal.
“We also look to move container ships through the northern sea route as warming temperatures melt the ice making it easier to navigate.”
This move comes on the back of months of Russian gas flooding European markets, keeping gas prices low, exacerbating an already-existing gas glut in the continent, and at least partially edging the United States out of the European natural gas market. As reported by Bloomberg, experts at Citigroup surmise that Russia’s increased shipments of natural gas to Europe are a kind of stress test for the United States. A Citigroup report says that Russia is intentionally keeping gas prices low because Moscow is likely “testing the response of the global gas market in a low price environment, especially U.S. LNG export elasticity.”
Now that Russia is strengthening its natural gas trade with China on top of its aggressive flooding of European markets with its cheap liquefied natural gas, the United States has more cause for concern than ever. Especially when taking into consideration that China’s thirst for natural gas is “almost infinite” as it tries to move away from its long legacy of dirty coal-based power and its middle class continues to boom, along with its demand for energy.
via ZeroHedge News http://bit.ly/2RizdPy Tyler Durden
Rich millennial heirs can now learn “impact investing” as part of a joint course run by Harvard and the University of Zürich, in collaboration with the World Economic Forum, according to Wealth Professional Canada.
The course, being held at Harvard University’s Kennedy school, requires some of the heirs to capitalism’s greatest fortunes to pass an interview, before ponying up $12,000 for a week of classes in the US and Switzerland, not including airfare and lodging. Some more intensive related courses cost $58,000.
The program started in 2015 and has barely been advertised since its founding. Instead, word-of-mouth through old money networks and among European royalty has kept the program popular. According to WPC, alumni of the program include “Chung Kyungsun, grandson of Hyundai Group’s founder, and Antonis Schwarz, who came into his fortune aged 16 when the drugmaker his great-grandfather helped found was sold for 4.4 billion euros ($5 billion).”
This group represents a small portion of the “quiet insurgency” of the world’s wealthy millennials. As other millennials seek to protest climate change and inequality, these capitalists are focused on trying to gain the skills to make impact investments that not only benefit society, but also turn a profit. The push has come as a part of rising pressure on the world’s wealthiest citizens to be more charitable. The widening inequality gap has also sprayed fuel on the fire of these arguments, prompting political divisiveness and increased charitable contributions from corporations worldwide.
High net worth individuals will have almost $70 trillion at their disposal by the year 2021, according to Ernst & Young LLP.
Asia is a prime example of both the upside and the challenges facing impact investors. Family offices in the region spend about 80% less on philanthropy than European and American peers, but that is partly because many Asian families give back to communities through informal channels.
Heirs to fortunes like Chung Kyungsun are trying to change that. He was bullied at his all boys school as a child and had little interest in joining his Hyundai family business. But the more he read about the inequality gap, the more he felt as though he was to blame for people not having access to basics.
He stated: “I don’t want to say that I’m responsible for that, or that my family is responsible for it, but I’m definitely someone who’s benefiting from this social structure. That’s why I felt that I needed to do something about it.”
Early charity work gave him a taste of positive change and, despite his parent’s misgivings, he backed his own attendance at the Harvard course and later co-founded Root Impact “to launch co-working spaces for social ventures, offer financial grants for affordable housing and environmental programs that benefit children, women and people living in poverty.”
He continued, stating: “In Asia especially, parents don’t allow children to do their own thing, or if they do, it’s with very limited funds. They feel very lonely because they feel like they’re the crazy ones.”
People like Chung are vital because the challenge of pulling people out of poverty is too great for just government change and philanthropy to solve alone – people must enlist capitalism for a widespread solution.
James Gifford, head of impact investing at UBS Group AG and co-founder of the Harvard course said: “The heavy lifting of, say, pulling a billion people out of poverty has to be through sustainable capitalism.”
Because the goal of the class is to make money, the theory is that families and institutions will contribute more because they will make it back. Chung has already won over his father – not by telling him it’ll solve social issues – but by showing him that the investments were a good return on his investment capital.
The new generation is important because younger people are more likely to identify with the need for social and environmental change. The Global Impact Investing Network estimates that around $502 billion is currently being managed in impact investing assets globally and networks such as The ImPact and Nexus Global have sprung up requiring participants to pledge investments.
The Harvard course has seen more than 100 students come and go already, and they represent only a fraction of the wealthy millennials who are attracted to the idea.
You can read Wealth Professional Canada’s longform story here.
via ZeroHedge News http://bit.ly/2MSL1cW Tyler Durden
Homelessness today is often blamed on both “gentrification” and “neoliberalism.” When these terms are used in the context of urban housing, it is usually implied that too much market freedom makes housing unaffordable to large swaths of the population. Thus, we are told capitalism is the primary culprit we now find in many large citiesfrom Boston to Los Angeles.
But there is much more to the story.
Since the Progressive Era, government agencies — from the federal level on down — have been front and center in subsidizing, regulating, and planning city development in ways that have made housing in city centers more sparse and more expensive for households who aren’t part of the hipster-millionaire demographic that so many urban planners and politicians are working hard to attract.
While rising demand for housing in a fixed number of square miles will indeed increase the price of land and housing, various types of government intervention makes housing more expensive than it would otherwise be. And sometimes, through zoning ordinances and other regulations, cities largely outlaw just the sorts of housing that are most needed by low-income residents.
To gain a better understanding of why homelessness is a recurring problem with apparently growing numbers, it is helpful to examine the origins of what is now standard operating procedure for cities: centralized urban planning. While very-low-income households and persons have long been part of the urban landscape in both the United States and Europe, city officials in the past often recognized that low-income neighborhoods were simply something that had to be tolerated. Although reformers often complained of the unclean and allegedly immoral nature of these places, a lack of government power — and resistance from private owners — prevented city officials from abolishing the areas of cities that provided housing. This housing — however sub-optimal it may have been — was preferable to homelessness.
The Progressives and the Idea of Urban Planning
Those low-income communities began to meet more organized opposition during the Progressive Era, although it’s not difficult to see why the idea of urban planning as we now know it was first embraced by Progressives. By the late nineteenth century, the situation in many American cities filled many middle-class Progressives with dismay. Lower-income neighborhoods of cities often lacked proper sewage infrastructure. They were dirty. Homicide rates were probably higher than they are today in many urban areas.
Much of the problem was blamed on “congestion” or “overcrowding” which today we would sometimes just call “density.”
For Progressives in every major city, crowding was the scourge that had to be eliminated. “It is the overcrowding that breeds crime and vice,” exhorted one writer, who insisted that the residents of these areas were not inherently bad, but were made so by their surroundings.
In many places, however, the awfulness of these places were exaggerated by reformists. After all, many of these “slums” contained multi-generational families, and longtime residents who made real efforts to maintain some level of safety and stability in the community. Many of the slums were really neighborhoods of boarding houses. They were crowded and uncomfortable. But they weren’t shantytowns either.
Common Progressive “solutions” to the asserted problems of the slums can be found in a 1911 report from a New York City commission on congestion. The recommendations include:
Regulating the height of tenement buildings.
Limiting lot occupancy.
Providing space for parks, playgrounds, and recreational center.
Regulating maximum occupancy for residential units [as part of an effort to abolish boardinghouses].
Locating factories in a more deliberate and rational way.
Most of these recommendations assumed a much larger role for the state in regulating, inspecting, and mandating changes to the current use of space. With this new sort of city planning, governments would need far more housing inspectors, zoning commissions, and a legal apparatus necessary to compel compliance.
Other cities followed suit, and “between 1907 and 1916 half of the nation’s fifty largest cities did commission or publish comprehensive city plans to deal with overcrowding.”
Conn concludes: “Thus did city planning arrive in the Progressive City.” And with it came zoning and a host of other mandates which gradually eliminated existing low-income housing units, while preventing the construction of new units to replace them.
Inherent in the new ideals, not surprisingly, was the idea that private sector actors ought not be allowed to decide on their own what was built in the city, and where. In the Progressive mind, too much private sector freedom had produced the “congestion” which Progressives sought to abandon and reform. This market activity was to be replaced by the decisions of city planners.
The Rise of Post-War Urban Renewal
Progressive reformers, however, were limited in pursuing these goals by a lack of funding and by political opposition from both property owners and the residents of housing which was targeted for reform. After all, if housing was to be regulated with new occupancy rules and mandatory changes in density, this would lead to both rising prices and forced removals from existing housing.
Property owners likewise, opposed reforms because low-rent units are often only worth the trouble when a large number of paying customers are concentrated in a relatively small space.
To be sure, private owners were open to having their property purchased by government. And many cities were eager to tear down “blighted” neighborhoods. But government funding was often scarce. As noted by Colin Gordon, local governments
could not overcome the pervasive obstacles to redevelopment: private interests had no incentive to facilitate public policy, and public interests had no money to acquire or assemble private property.
Things changed, however, with the advent of the New Deal and the end of the Second World War.
What had a been a largely local move to reduce density and forcibly “clean up” lower-income neighborhoods in the Progressive Era became a national movement under the New Deal. The National Housing Act of 1937, for example, established a system of loans and grants-in-aid to local public housing authorities. Unfortunately, the thrust of these efforts was redevelopment and not the production of new units. In fact, use of the federal funds for redeveloping housing units “required the clearance of an equal number of ‘blighted’ properties.”
Government subsidized redevelopment accelerated under the 1949 Federal Housing Act which
made federal funds available for the redevelopment of large areas rather than merely the removal of discrete slum conditions. Under the new law, local redevelopment corporations could buy and clear blighted areas with federal money, sell the land to private developers, and use the proceeds to cover the redevelopment costs.
There was opposition from “private interests threatened or displaced by urban redevelopment plans,” but
state and federal courts persistently held that the broad public purpose of redevelopment over-rode the claims of individual property owners, and that resale of cleared properties to private developers amounted to an appropriate public use.
Over time, the new spirit of urban renewal, propelled forward by federal legislation and federal money, resulted in a war on “blighted neighborhoods,” with the term “blight” proving to be quite flexible. Indeed, any neighborhood or city block that city planners regarded as producing too little tax revenue, or was simply unattractive, was targeting for a government funded-buyout, leveling, and redevelopment.
Through it all, government officials claimed they were increasing housing supply for American families. As noted by Walter Thompson:
Razing slums was key to reviving city centers, held the prevailing wisdom for many decades last century. In his 1949 State of the Union, President Harry Truman hailed “slum clearance” as a weapon to combat the nation’s post-World War II housing shortage. As a 1945 San Francisco Chronicle op-ed stated, “bluntly, nothing can be done to improve housing conditions here until a lot of people clear out.”
But urban renewal only improved conditions for some people. In his article “No Room at the Inn: Housing Policy and the Homeless,” Todd Swanstrom notes “It is well documented that the urban renewal programs of the 1950s and 1960s tore down more housing than they replaced.”
This is because, as Gordon describes it, federal policy was “committed to improving the housing stock without increasing it.”
Yes, the bulldozed units in the slums were replaced with some units of higher quality. But they were rarely replaced with enough units to replace those that had been torn down.
City planners were happy to show off the shiny new projects they had used government money to redevelop. But unseen were the households who simply could not afford units in the new buildings.
After all, the poor that lived in the slums lived there precisely because it was cheap, low-rent housing. Reformers admitted there were no “pat answers” to explain what would become of the displaced families. But few reformers seemed much troubled by it. Then, as now, it may have been what really mattered to reformers was to be able to claim they were doing something. And besides, living in the slums was obviously a bad thing. But as Swanstrom very pragmatically suggests: “these accommodations [in the slums] may have been offensive by middle class standards, [but] they were nevertheless better than living on the streets.”
But many reformers ignored this bit of wisdom and insisted on housing policy built around urban central planning, anti-slum mandates, and redevelopment which favored urban commercial development where residential development once had been.
Meanwhile, federal policies were introduced during the New Deal and in later iterations of expansionist federal social policy which encouraged more spending in the suburbs than in the cities. Federal programs designed to increase suburban single-family homes proliferated with new federal creations like Fannie Mae and new mortgage insurance programs. Federal grants also encouraged construction of new freeways out of the city, and building more suburban infrastructure. The dollars spent on subsidizing the suburbs thus greatly outnumbered those spent on subsidizing construction of new housing in city centers. Combined with anti-slum policies, federal policy and federal spending patterns acted to drain central cities — and their neighborhoods — of capital while demolishing the housing that remained.
Implications for Today
By the 1980s, as homelessness became a frequent topic of research, some scholars began to recognize how federal urban renewal policy had laid the groundwork for the rise in homelessness that occurred in that decade. It turned out that the federal government’s grand plan of leveling flophouses and residential hotels in the name of “beautifying” cities, mostly just resulted in destroying the only housing the very-low-income population could afford. Deprived of their units in the slums, these people ended up living in tent cities and cardboard boxes instead.
Today, little has changed for those with the lowest incomes. The options once available to them in the pre-1950s world are gone, and were never replaced.
Thanks to the persistence of the Progressive mindset in cities, zoning, “redevelopment” and a centralized control of new construction remains the norm. “Density” is the new “congestion” and the attitude of city planners remains the same. They bemoan the lack of affordable housing while also blocking efforts to build more housing. Meanwhile, they tighten controls on modern-day boarding houses and other private-sector attempts to provide low-cost housing. Planners impose height restrictions and density controls. They create arbitrary minimum sizes for units. In many states and cities, the definition of “blight” remains flexible, empowering governments to further eliminate old housing units at the discretion of city planners.
Moreover, the old urban renewal methods persist in updated forms. Tax Increment Financing (TIF) legislation is geared not toward low-cost housing, but toward new commercial development. Often, that development is built where “unsightly” (but affordable) housing once existed. Its destruction is encouraged by government policy. Federal tax policy and mortgage policy continues to draw capital away from urban rental housing and into suburban single-family housing.
Yet, city centers remain the most practical place for very-low-income housing to be built and sustained. This is because the lowest-income households need to be close to the densest areas that sustain mass transit and access to employment. By destroying the urban ecosystem of very-low-income housing, though, governments have left many of these people few options other than living in cars, alleyways, and sidewalks. This, of course, is far more dangerous than living in a run-down residential hotel with a functioning toilet down the hall, and a locking door on the room.
But even if city governments were to begin allowing the private sector to freely build again, it would likely take decades to produce the housing infrastructure necessary to address the housing needs in city centers. We continue to live with the wreckage of failed urban renewal, and the evidence can be seen in the tent cities and makeshift latrines we now see in public spaces.
via ZeroHedge News http://bit.ly/2KRKtBl Tyler Durden
