News: Real Estate, Risk, Economics. Jul. 11, 2015

⇧ Downwardly mobile | Arctic Sea Ice News and Analysis
Arctic sea ice extent for June 2015 was the third lowest in the satellite record. June snow cover for the Northern Hemisphere was the second lowest on record.
⇧ PropertyPak™ on Twitter
This is one of our tweets from last Wednesday, July 8, 2015. It's a retweet from Edward Harrison of a Frances Coppola article.
We couldn't agree more! @Frances_Coppola is completely correct. It's too bad she's not calling the shots.
⇧ Policy Lessons From The Eurodebacle - The New York Times
Paul Krugman rightly says Canada shows...
...the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.
⇧ FDNY: June 2015 Marks 1st Month in 150 Years With No Fire Deaths in NYC
The New York City Fire Department (FDNY) announced that the month of June 2015 marked the first month on record in FDNY's 150-year history without any reported fire-related fatalities in New York City.
That was nice to see.
⇧ Shocked! The dangers of electric vehicle charging stations | PropertyCasualty360
We're including this because we see the day when apartments and rental houses, etc., will generally have to deal with this issue (not far off at all). Click through to read the whole article concerning some important vehicle-electrical-charging issues.
The copper-theft aspect is especially infuriating in our view. Security cameras will end up having to be everywhere because of the thieves. Robots will be rushed to the scene to apprehend the criminals. That will just be the beginning too. What a shame it is that people just can't leave good things like free charging alone!
⇧ Stock market intervention: China now, Hong Kong then | Gavyn Davies
Gavyn Davies is basing this on the Hong Kong experience.
China has already complained loudly about "speculators" shorting the markets, and has directly intervened to reverse this. The market has been in a bubble, but statistical models suggest it may now be out of it. Of course, it could resume if the authorities get their timing, or the extent of their intervention, wrong — which is very possible. And this form of intervention is normally a very bad idea in the long run.
However, it seems unlikely that the authorities will allow the market to drop much further. They are concerned that a stock market crash could take consumer confidence down with it, and that would be fatal for their economic strategy. They have therefore set a target of 4500 on the Shanghai Composite index, 20 per cent up from here.
Unlike many western nations, they will not be too squeamish about what they have to do to prop up the market.
Hong Kong, however, was a very sophisticated, experienced place concerning "capitalism" and investing/markets, etc. Mainland China is not, far from it. Most Chinese people are total novices and will not be reading Gavyn's articles or anything remotely close to them. Many of them are heavily invested in their stock markets without even high school under their belts.
Just remember what the top Wall Street investors determined before the Great Crash: when everyone is in the market thinking it can't crash, get out because it's about to!
⇧ Mediocre Tranquility - Tim Duy's Fed Watch
Tim Duy has been sounding premature for a long time now. He starts out that way again here but then tones it down (or hedges) in the end.
The US economy is plain vanilla. Clearly not accelerating enough to justify a faster pace of monetary policy normalization, but not slow enough for the Fed to abandon their hope of at least initiating the first rate hike this year. They are still looking for stronger numbers, however, to pull that trigger. Fed officials on average are cautiously optimistic the issues in China and Greece will not spill over to the US economy, giving them the opportunity to hike rates. Still, in the absence of confirmation of that hypothesis, those issues still decrease the odds of a rate hike this year. This is especially the case if the recent decline in commodity price places renewed downward pressure on inflation. Such an outcome would raise the bar on the strength of the remaining data to justify a rate hike. In her speech Friday [which will have been given by the time this entry is posted here], we will hopefully learn more of Federal Reserve Chair Janet Yellen's view on the importance of Greece and China for US monetary policy.
We think both Greece and China will have a greater negative impact then the general consensus out there seems to.
People have been emphasizing how much more important China is, but we think they are economists rather than political scientists. The Greek issue is huge. In fact, we think it's bigger than the China issue because a Chinese crash won't impact ideologies geopolitically to the extent a Greek exit will.
China will push over economic dominoes and impact governments to tweak. Greece (if forced out, if Germany stays asleep at the switch) will push over governments, eventually big ones on the international stage. That will fundamentally alter economies ideologically, which is really a bigger deal.
⇧ Hard Evidence: how has the eurozone affected the welfare of its citizens?
Philip Haynes:
Full employment, equity of health care provision, poverty reduction and educational attainment all might be expected to converge in the longer term. But this can only happen if the crisis results in a more interventionist policy approach to political economy right across the eurozone. Ultimately, countries like Greece can only continue to survive if all member countries take greater responsibility for the welfare of eurozone citizens, rather than enforcing austerity as a punishment for previous debts.
Hear, hear.
⇧ Explainer: the real role of banks in money creation
Oh, please, this article in no way shows that banks don't create money out of nothing. Facilitating a loan transaction doesn't mean the bank did not create the money out of nothing. It most certainly did!
Only if a bank lends deposits dollar-for-dollar does it not create the money out of nothing. Banks do not operate that way. They lend at best against reserves on a ratio basis, such as 10% in the US. In other words, they leverage 10% into 100%, 90% of which is simply a bookkeeping entry with no corresponding deposit in general. Of course, that 90% often gets deposited elsewhere where it serves as 10% reserves in the US.
In the UK, they apparently don't even require such reserves.
⇧ Europe's Future Is Federal - Social Europe
Jean Tirole:
We Europeans must accept the loss of sovereignty that's necessary to live under one roof. And, to do so, we should rehabilitate the European ideal and unite to defend it against populist nationalism — and this is not easy these days.
"Populist nationalism" is an oxymoron, but we take Jean's point.
⇧ What Does the Future of Multifamily Look Like? - YouTube
Okay, this ends up as an ad, but the intro is informative (not saying their products aren't).
Jeff Adler, vice president of Yardi Matrix, discussed what's to come for the multifamily industry.
⇧ Is it Better to Purchase a Fixer Upper or a Property Already in Great Condition? [#AskBP 059] - YouTube
This video is definitely for the novice.
Buying a fixer-upper offers real estate investors greater opportunities to snag investment property at below market value and quickly build equity, but it comes with greatly increased risk for the new investor. On this episode of the #AskBP Podcast, Scott Trench shares his perspective as to which types of investors might want to take on this added risk, vs those who might do well to avoid properties that need a lot of work. If you're looking to buy a fixer upper as a first investment, make sure you ask yourself the questions posed in this episode!
Don't forget, the video only represents this one fellow's opinion (though many people may completely agree with him).
Interestingly, he emphasizes that it is his opinion. As for there being no truth, well, that's his opinion too.
⇧ U.S. Big Magnet For Global Commercial Real Estate Money - Investors.com
Last year, he said, investment capital from China was focused mainly on New York, San Francisco, Boston, Los Angeles and Houston. But this year, Chinese commercial real estate investors "are expanding their markets to include Seattle, Chicago, Hawaii."
Colliers expects the flow of real estate investment out of Asia to jump more than 60% this year over last year's record $46 billion as investors seek geographical diversification and better returns.
How much of that money will end up back in China to pay debts there?
⇧ Seattle: Changes water supply outlook from 'good' to 'fair' - Washington Times
Noting higher-than-usual water consumption, hot June temperatures and record-low stream flows into storage reservoirs, Seattle Public Utilities has changed its water supply outlook for the city from good to fair.
⇧ Seattle's Tech Boom Is Driving Up Housing Prices - Bloomberg Business
The area, already home to Amazon and Microsoft Corp., has attracted Facebook Inc., which earlier this year agreed to lease most of a building in the city's South Lake Union neighborhood. Google Inc. has a satellite campus in Kirkland and Alibaba Group Holding Ltd. is in talks to rent additional office space east of Seattle. Other homegrown technology companies include Zillow Group Inc., Expedia Inc. and Zulily Inc.
⇧ Argentine Lessons For Greece - The New York Times
Paul Krugman:
...Argentina's economy was in free fall over the course of 2001 — before the dollar peg was abandoned — thanks in large part to banking collapse and public panic (sound familiar?). But the free fall ended quite soon after the peso was devalued.
⇧ "Guerrilla Warfare Against a Hegemonic Power": The Challenge and Promise of Greece | WEB OF DEBT BLOG
We thought of this as a possibility but later came to the conclusion that Greece would never do this because it would ruin them in the EU/euorzone, which they don't want. They'd leave before issuing enough euros to bail themselves out.
⇧ Home-Buying Incentives Gone Wrong: Why You Should Buy When the Time is Right for You, Not the Market | Zillow Blog
When the economy was a shambles and the housing market was in disarray back in 2009 and 2010, the U.S. government offered a special tax credit for first-time home buyers.
Turns out that from a purely financial standpoint, people who bought then would've been better off renting and putting their down payment and transaction costs into the stock market, according to a new analysis by Zillow Research.
That thinking has been around a long, long time. It is good that Zillow put it to the test. The balance of the article is quite good — much less hype than one finds on some other "real estate" centric sites.
⇧ Mortgage Rate Outlook Uncertain As Q3 2015 Begins | Zillow Blog
Here's a good one from Zillow which explains of how geopolitics and other international factors impact US bonds and US mortgage rates.
⇧ 20 Indianapolis Families Displaced by Flooding
The Red Cross says about 20 families have been displaced from their Indianapolis homes after heavy rains inundated parts of Indiana.
⇧ Agents in Indiana Say Insurance Increased Prior to Home Explosion
Shocking:
The girlfriend of a man accused of blowing up an Indianapolis, Ind. house, devastating a subdivision and killing two neighbors, nearly doubled the insurance coverage for the contents of her home 11 months before the explosion, two insurance agents testified this week.
⇧ These 5 charts link China's stockmarket crash to problems in property - Agenda - The World Economic Forum
The government's latest plan to purchase unsold residential properties and convert these units into low-cost public housing is seen as a practical way to reduce inventory levels.
Socialism to the attempted rescue? It's not a terrible idea. In fact, what better choice do they have?
⇧ Fed's Kocherlakota: Fed Mission Could Be Made Easier With More Government Debt - Real Time Economics - WSJ
This is so in line with what we've written that it verges on eerie.
⇧ Public records say Buckhead investor owns, manages derelict properties | The Watchdog blog
A Buckhead real estate investor who has become the Atlanta mayor's Public Enemy No. 1 is denying that he owns or operates derelict properties that could land him in jail. But an AJC check of public records says the opposite.
⇧ Deed shifting: Man convicted in real estate scheme faces new allegations | abc7chicago.com
Deed shifting is illegal and immoral.
Reportedly, a man paid for a house via rent-to-own. Before he recorded the deed in his name, the seller recorded a deed shifting ownership to a different entity than the one from which the renter had made his payments.
The recorder says Schrader shifted the deed from his personal name to his company "Chicagoland Rent to Own Homes" before Lake could record his deed, making Lake's worthless and giving Schrader the ability to sell the home again or take a mortgage out on the property.
⇧ Chinese Equity Markets—Implications for U.S. Commercial Real Estate | Finance & Investment content from National Real Estate Investor
...Chinese equity markets are a surprisingly small portion of household financial assets, according to HSBC Chief Economist for Great China Qu Hongbin--barely 15 percent. Assuming equity declines are stemmed sooner rather than later they are not likely to have a significant impact on Chinese consumption (or imports).
Rose-colored glasses?
⇧ UPDATE 2-Saudi Arabia issues first sovereign bonds since 2007, more to come | Reuters
The Saudis hit the US fracking industry as hard as it could, but that industry has not been taken out and doesn't look like it will be.
The Saudis are now issuing bonds as a result. That will only encourage the frackers to not only hold on but to redouble their efforts to reduce costs via improving technology.
The Saudis' war against the Houthis in Yemen may also have to give way or the Saudis may have to drain their reserves, bonds or no bonds. In addition, the wars could easily widen if the sharks sense that the Saudis are getting into a weaker and weaker position.
Of course, fracking is an uneven double-edged sword. What it gives with one hand, it takes away more with the other.
⇧ 3 Reasons to Use a Self-Directed Retirement Account
I recently interviewed Edwin Kelley, the CEO of Specialized IRA Services. His company is one of a handful of custodians that specializes in self-directed retirement accounts. I don't know an exact number, but I do know that this segment of the financial services industry is exploding right now. Why? Because the average investor wants more control over their long term investments.
⇧ North Carolina Deck Collapse Caused by Deteriorating Nails
Nails deteriorated by years of exposure to the sand, salt and moisture from the ocean gave way, causing a deck collapse that hurt 24 people as they posed for a picture at a North Carolina beachfront home, authorities said.
⇧ PropertyPak™ (@PropertyPak) | Twitter
Visit our Twitter feed to see articles we didn't include here because we didn't want to delay them during this heady time.
⇧ Joseph E. Stiglitz: The U.S. Must Save Greece | TIME
We tweeted and posted this to our Facebook Page; but because Germany may well do the wrong thing and refuse a massive principal reduction, we figure Joe's idea may still be required as this entry goes to press.
Our Facebook post of July 10, 2015 (https://www.facebook.com/PropertyPak/posts/926641010733970):
We were thinking about this very thing (and a bit more — such as Greece joining the United States) yesterday. While we were thinking about it, Joe Stiglitz was writing it and getting it published. "...the Federal Reserve needs to create a swap line with Greece's central bank, which—as a result of the default of the ECB in fulfilling its responsibilities—will have to take on once again the role of lender of last resort. Greece needs unconditional humanitarian aid...."
⇧ FRB: Speech--Yellen, Recent Developments and the Outlook for the Economy--July 10, 2015
From Janet Yellen's speech delivered July 10. 2015, it is clear that she is cautiously optimistic. She is leaning in the direction that the US economy will continue improving albeit slowly. That said, she makes equally clear that if the data shows a reversal in the economy, she won't hesitate to not raise the Fed rate. It is also clear that she wants to do what we'll describe as "get out in front of the curve": to have room to lower the rate if a slowdown occurs. We think that's not the right thing to do. We hold that the Fed should wait until price inflation is actually at or above 3% before raising rates or taking other actions to slow things.
⇧ PBOC Gives Glimpse of Its Bazooka - MoneyBeat - WSJ
...quantitative easing with Chinese characteristics.
It's a form of partial nationalization via creating currency to lend. Are they "nationalizing" dogs? It strikes us as worse than central planning. Will it really instill confidence?
⇧ Kessler: Treasury Bond Contrarian - YouTube
We are very close to the same views Robert Kessler holds concerning bonds and the Fed rate, etc. However, we don't think the people at the Fed are quite as wise and commonsensical, in general, as Robert. He won't be buffaloed.
Our guest is taking on the Wall Street consensus. The overwhelming sentiment from economists, analysts and strategists is that the great bond bull market, particularly in U.S. Treasuries, is over. Treasury bonds have been described as extremely overvalued, risky and undesirable. Not so says global bond manager Robert Kessler. He is sticking with his decade long, bullish view on Treasuries and says the Federal Reserve is in "no position to raise interest rates."
⇧ Banks, landlords swooping up properties around county
People are not moving in like they used to," depressing the market, she said.
If the bank can't find a bidder willing to pay the amount due the bank buys it back....
⇧ Equity turmoil swirls around realty sector|Industries|chinadaily.com.cn
Some investors are rushing to sell their homes or ditching plans to buy property after piling up losses when the Shanghai Composite Index went into free-fall over the past three weeks.
⇧ Disgorge the Cash | Roosevelt Institute
The shareholder revolution killed plowing capital back in.
⇧ Germany won't spare Greek pain — it has an interest in breaking us | Yanis Varoufakis | Comment is free | The Guardian
Who rules Europe and why?
Yanis Varoufakis, former Greek finance minister:
The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools — it is more than an exchange-rate regime and less than a state.
And there's the rub. After the crisis of 2008/9, Europe didn't know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.
What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.
The contest is between democracy and Germany's German-centric, anti-Keynesian ordoliberalism. See the next entry below.
⇧ Of rules and order | The Economist [Germany's economic ideology: ordoliberalism]
On ordoliberalism:
German thinking on economics has long differed from the mainstream in other countries, including other euro-zone members. In the past six years of euro crisis, the gap has become larger, more visible and more controversial.
⇧ Typhoon Chan-Hom Lands in East China, Wreaks Havoc
45 meters per second equals almost 101 miles per hour.
⇧ Big Profits for Landlords, Big Expenses for Renters
More and more across the U.S., it pays to be an apartment landlord. Recent reports show the national average apartment rent at $1,211/month, representing a 5% year-over-year increase, and rents are spiking dramatically, especially in "hot" cities, such as Denver, Portland, Oakland and San Jose.
While some experts believe that aggressively rising rents spell impending disaster due to an increasing hypersupply of new development, statistics have yet to indicate a backlash against sky-high rates. Rather, the average occupancy rate in the second quarter remained at "full occupancy" levels of 95.2% nationwide.
⇧ Greece: Past Critiques and the Path Forward | iMFdirect - The IMF Blog
Olivier Blanchard:
...in 2012, debt was substantially reduced: The 2012 private sector involvement (PSI) operation led to a haircut of more than 50% on about €200 billion of privately held debt, so leading to a decrease in debt of over €100 billion (to be concrete, a reduction of debt of 10,000 euros per Greek citizen).
That debt was based upon the fraudulent activities of a prior Greek government and upon the lazy due diligence of the creditors, who should be held culpable too and who should be forgiving beyond what was mentioned above.
We believe that current developments may well imply the need for even more financing, not least in support of the banks, and for even more debt relief than in our DSA.
However, what form would that debt relief take? If not principal reduction and large enough, it will not be morally acceptable.
⇧ Make or break for Greece | FT Comment - YouTube
We aren't endorsing this video. In fact, we disagree with a great deal of it. We're just including it because the conversation is interesting.
The FT's Martin Sandbu talks to Philip Stephens about the Greek government's reform proposals, and the likelihood of a deal.
We think a great deal of the commentary is racing to judgment.