Real estate, risks, & economics: links & commentary for May 13, 2019

Why tariff war threatens Beijing’s global economic ambitions

China’s intensified tariff war with the Trump administration is threatening Beijing’s ambition to transform itself into the dominant player in global technology.

Good!


Obama’s overtime rule was better for Michigan residents

In March, the Department of Labor announced a proposal to set the salary threshold under which American workers are entitled to overtime pay to $35,308 a year. The Trump administration is touting the rule as a way to bring “common sense, consistency, and higher wages to working Americans.” However, the adoption of this new rule will actually leave behind 192,000 Michigan workers who would have gotten overtime protections under Obama administration guidelines that would have raised the threshold to $47,476 for a full-year worker in 2016 and indexed it to wage growth going forward.


As Uber Investors Prepare to Make Billions, Drivers Strike Over Low Pay and Poor Conditions

On May Day, the New York Times’s Farhad Manjoo published an op-ed lambasting the approaching Uber initial public offering as a moral stain on Silicon Valley: “In the years since [its founding], Uber skirted laws and cut corners to trample over regulators and competitors. It accelerated the start-up industry’s misogynistic and reckless hustle culture. And it pushed a frightening new picture of labor — one in which everyone is a contractor, toiling without protection, our hours and our lives ruled by uncaring algorithms in the cloud.”

I’ve never hidden that I can’t stand the Uber model. I think it represents everything that’s wrong with our economy. Laissez-faire is where Uber came from, and it’s been awful.

How many of your tenants are Uber drivers simply because we don’t have good labor-laws and regulations in the USA? How tentative are their rent payments because of it?


10 expensive cities where salaries are rising faster than housing costs

Wages in the United States have been mostly stagnant over the past few decades, according to a study from the Pew Research Center. And since 1999, incomes for middle class families, specifically, have actually shrunk in all but two states, another study found.

At the same time, housing costs keep increasing.

Still, there are some cities where incomes are rising faster than housing costs. To determine exactly where, financial website Magnify Money used data from the U.S. Census Bureau to compare workers’ incomes in the nation’s 100 largest metros to the cost of housing in those same areas.

Here are the top 10 U.S. cities where incomes are outpacing housing.

That’s nice, but wages aren’t salaries.


Rate Cuts Are About Stocks Not Inflation

Most exceptional economy ever needs an emergency 1% rate cut? Sounds odd, doesn’t it? How can you have a robust economy creating over 200,000 jobs per month with nominal wages growing faster than any time in the cycle and then beg for not only a 1% emergency rate cut but also QE4? Is the argument really about inflation?

It’s not low inflation. It’s about the stock market.

For the Fed, rate cuts are not simply about stocks. Rate cuts are about a sinking economy regardless of stock prices. Stocks are just one of now probably dozens of factors used by the Fed to model and try to predict the economy’s direction.


Labour pledges £10 minimum wage for under-18s

Speaking at a party gathering in Birmingham on Saturday, Mr Corbyn said: “Equal pay for equal work is hardly a controversial idea, so why are we discriminating against young people?

“You don’t get a discount at the shops for being under 18.

If you read the arguments against Corbyn’s position, you’d think they’re talking about high-skilled wages being set at minimum wages. Don’t they give raises over there above the minimum?


Arguably, after the media, Trump has railed hardest against the Federal Reserve. The rates and an economy that has grown at an annualized pace above 3% for three of the past four quarters and unemployment is sitting near 50-year lows. The 12-month moving average of non-farm payrolls is above 200k, a full decade since the economy troughed during the Great Financial Crisis. Despite this, and the fact when adjusted for inflation, interest rates are only a little above zero, Trump has called for the resumption of the asset purchase program and 100 bp cut in interest rates. His senior economic adviser has called for an immediate 50 bp cut.

The economic logic is elusive, but the political motivation is obvious. Just like the investment bank that suggested that based on economic growth and unemployment forecasts thought the odds favor Trump’s re-election, Team Trump recognize that should the economy weaken so will the re-election chances. An amped-up economy also gives the President the latitude to be Disruptor in Chief.

“The economic logic is elusive, but the political motivation is obvious.” That “logic” is flawed. “… should the economy weaken ….” is the weakness in that “logic.” Trump’s team knows the economy will weaken due to the falling off of the impact, what little there was, of the massive corporate-tax cuts and the tariff war with China (which tariff war I’m for).

Like Mexico is going to pay for the wall, Americans have been told by the President that China is paying for the tariffs. In practice, the situation is more complicated. The importer pays the tax to get access to the goods. As the Fed’s Bostic explained last week, the companies he spoke with were willing to absorb the 10% tariff but the 25% tariff they will have to pass on to their customers. The initial tariffs were on capital and intermediate goods, which also helped minimize the direct impact on consumers. Consumer goods account for around a quarter of the $200 bln of goods that will be subject to a 25% levy instead of 10%. One study by an economist at the University of California, cited by NPR, estimated that last year’s tariffs cost the average American consumer about $760 last year and the new tariffs will cost an extra $500 a year.

“… the 25% tariff they will have to pass on to their customers.” That means fewer Americans will be paying for Chinese products unless China itself reduces what it charges for those products. That’s the whole point behind the tariffs. If it were not going to work, China would laugh it all off and tell Trump to raise the tariffs to 100% or 10,000%. Naturally, that’s not what China is doing. China is afraid, and many Chinese businesses are already reeling. That’s what will get China to cave. Unfortunately, it won’t get them to democratize because Trump isn’t holding out for that. He doesn’t care about it.

The article then goes on to somewhat affirm my positions. Go figure.


Trump Warns China to Act on U.S. Trade Deal or Face Worse Terms

In a wide-ranging interview with Chinese media after talks in Washington ended Friday, Vice Premier Liu He said that in order to reach an agreement the U.S. must remove all extra tariffs, set targets for Chinese purchases of goods in line with real demand, and ensure that the text of the deal is “balanced” to ensure the “dignity” of both nations.

Harsh but true: Dignity is code for China fearing losing face. Those days are over. Welcome to the world of hyper-capitalistic competition. Trump doesn’t give a damn about your face. He cares about making money. You want to save your face? You should have thought about that before engaging in competition with the US over money.


An Experiment with Basic Income

Writers such as Dickens exposed the appalling conditions in which the poor were living both inside and outside workhouses. But they were deliberately created by well-meaning people convinced of the virtue of work, any work, however demeaning and however poorly paid.

We have come a long way since the days of Dickens. Let us not go back there again.


FHA Offers Incentives for Multifamily Developers in Opportunity Zones

The FHA announced it will reduce application fees paid by property owners applying for certain multifamily mortgage insurance programs for the development or rehabilitation of current or proposed apartment units located in Opportunity Zones. This will involve the switch from the current $3 per thousand dollars of the requested mortgage amount to $1 per thousand dollars of the requested mortgage amount, which the FHA said will result in an average cost saving to applicants of approximately $28,000. For ‘market rate’ and ‘affordable’ transactions, FHA will reduce application fees from $3 to $2 per thousand dollars of the requested mortgage amount, which the FHA said will create an estimated average cost savings of $14,000. The agency is also dispatching teams of senior underwriters to review these applications to prioritize processing.


Money talks: Investor pressure is key to tackling climate change

The Bank of England’s Sarah Breeden told us that many regulations came from looking “in the rear-view mirror at what has happened but climate change is, by definition, a forward-looking risk”. The impression I get is that the Bank is open to a debate; Ms Breeden herself told me that climate change was “an unprecedented challenge”.


Even with unemployment at 50-year low, Kashkari says it’s not the time to raise interest rates

Since becoming Minneapolis Fed president at the start of 2016, Neel Kashkari has repeatedly expressed a reluctance to raise interest rates. And the reason he cited most was that the U.S. job market wasn’t as strong as the steadily falling unemployment rate made it seem.

On Friday, a week after the nation’s unemployment rate reached its lowest level in 50 years, Kashkari said the job market is still not as tight as the rate indicates. The central bank should look at wages instead, he said.

“Historically we believe, and the evidence shows, the unemployment rate was a pretty good proxy for measuring slack in the labor market,” Kashkari said. “But it has really failed us in this recovery and it continues to send off faulty readings.”

That’s where I’ve been all along, long before he joined the Fed. Nevertheless, Neel Kashkari has the best sense and feel of it of anyone at the Fed today without doubt.


Trade tensions push mortgage rates lower for second week in a row

Should the Fed turn on a dime with every increase or decrease in tariffs on Chinese goods? Yes.


Trump May Redefine Poverty, Cutting Americans From Welfare Rolls

The chained-CPI concept is junk. It’s a scam and not about helping the poor at all. What it really is, is substituting dog food for steak. That’s inhumane.