News

Landmark Links August 27th – Danger Lurks Below

Must Read: Bond yields have been falling for quite a while and the Fed is cutting short term rates.  Conventional wisdom is that this is good for borrowers using floating debt.  However, some floating rate borrowers will be surprised to learn that their loans are little more than a riskier version of fixed rate financing due to high interest rate floors.  Lenders have been aggressively pushing rate floors, often close to the index rate on the date of loan closing.  This means that the borrower effectively takes on all of the risk of higher interest rates when yields increase but gets none of the benefits when yields decrease.  (h/t Steve Sims and thanks to our friends at Derivative Logic!)

Economy

A Step Too Far? Germany issued a 30-year bond with a negative yield last week and pretty much no one was interested in buying it.

Storm Clouds: McKinsey is seeing ominous signs of another Asian debt crisis. After examining the balance sheets of more than 23,000 companies across eleven Asia-Pacific countries they found that firms in most of Asia face “significant stress” in servicing debt obligations with corporations using a predominant share of their earnings to repay debt.

Can’t Quit You: The US/China trade war should be great for Vietnam – and indeed, the country has seen a large increase in interest from global companies.  However, a relatively small population and sub-par infrastructure mean that it will take years for it – or any other southeast Asian country for that matter – to replace China as the world’s factory floor.

Commercial

In This Together: Opportunity zones were created to spur development in distressed neighborhoods, but developers in some areas are struggling to find tenants for their new properties. Their savior may be another rising trend in commercial real estate: co-working.

Disappearing Act: Snapchat played a major role in transforming Venice Beach from a gritty Los Angeles hippy enclave to gentrifying Silicon Beach, earning the wrath of locals in the process.  Now Snap has moved to Santa Monica, giving their opponents what they asked for and leaving vacant buildings in their wake. The question now is what comes next.

On the Hunt: Developers and investors are growing weary of the longest expansion in American history and are beginning to prepare for the opportunities that will present themselves in the next downturn.

Residential

Flipped: The inverted yield curve is doing something unusual to mortgages –  sending ARM rates above traditional 30-year fixed in some cases.

Momentum: The average apartment occupancy rate in the U.S. rose to 96.2 percent in July, up 40 basis points from the year before, according to RealPage. That’s the highest the occupancy rate has been since 2000.

Profiles

Added Color: Employers are seeing a surge in Generation Z CVs containing photos and illustrations – and in some cases even bitmoji’s.

Long Decline: The number of foreign students in the United States has been falling and it has as much to do with declining birth rates abroad as it does with current politics.

The Gamble: How Elon Musk fooled investors, bilked taxpayers and gambled Tesla in order to save SolarCity.

Chart of the Day

China’s demographics are the stuff of economic nightmares.

Source: Yardeni Research

WTF

Hold My Beer: A 62 year old woman arrested for drunk driving asked cops if they wanted to place a bet on what she registered on a breathalyzer test because Florida.

Strange Hobby: An elderly man with a bizarre castration obsession was busted by cops for allegedly performing a botched, at-home surgery on another man whom he met through a site on the dark web for those with eunuch fetishes because Florida.

Hot Wheels: A drunk man stole an electric courtesy cart from Walmart and drove nearly a mile until the battery died and he was apprehended by the police because Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com