Landmark Links January 30th – Round We Go

Quick programming note: Your chance to get a lifelong Giants fan (me) to don an Eagles or Patriots jersey and root for one of those teams, while doing just a little bit to end homelessness is quickly running out.  For those of you interested in humiliating me for a really good cause, here’s the GoFundMe link.

Lead Story…

“It’s tough to make predictions, especially about the future.” – Yogi Berra

One of the reason that I began writing this blog is because of my strong agreement with the quote above attributed to Hall of Fame Baseball player and great American philosopher Yogi Berra.  Accurate predictions are incredibly difficult because they involve synthesizing all of the facts and data that we currently know but cannot take into account other factors that we do not necessarily even know exist. That’s where the blogging part comes in for me.  The Lead Story section of Landmark Links typically consists of my opinion on a current topic while the links portion typically features economic and real estate (and other) stories which I may or may not agree with.  My only requirement is that they come from credible sources.  Writing the blog in this format forces me to read things that I may not agree with and challenge my beliefs and opinions.  That’s why I often post things that can seem conflicting – it’s not that I agree with both but rather that I’m trying to provide different sides of an argument.  In other words, “Gotta Hear Both Sides” is more than just a catch phrase for some of the more outlandish stories posted in the WTF section.

One recent example of posting conflicting opinions has been recent stories about how many (all?) economists seem to think that recession risks are extremely low for 2018 while also periodically pointing out the Minskyite truth that long periods of stability can themselves be destabilizing when investors become too complacent and take unwarranted risks.  And that brings me to an blog post that I read last Friday from Josh Brown of The Reformed Broker entitledStock Market Reversals Can Cause Recessions Too The post referred to a somewhat infamous Barrons article by Jack Willoughby called Burning Fast from March of 2000 which was the first mainstream financial media outlet to point out that many high flying tech companies were burning way too much cash and would soon run out.  The Barrons article was unique because it was among the first to point out an argument against web stocks that wasn’t valuation based and is often considered the starting point of the dot com crash which led to the tech recession of 2001.  I found this passage to be the most interesting part of Brown’s post (emphasis mine):

What makes this apropos to today is the idea that, while there is no recession in sight economically, a stock market reversal could certainly cause one. After all, it was the early 2000 reversal in growth stocks that caused the recession then. So much capital expenditure and consumer spending was being fueled by equity gains that when the gains went away so did all the demand in the real world. It wasn’t the first time that speculative market activity spilled over into the economy with disastrous consequences, and it won’t be the last time.

Brown is talking about stocks here but the same could be said of any large capital market with substantial capital gains such as fixed income or real estate.  It’s relatively easy to look at the economy from 30,000 feet and say that things will be stable for the foreseeable future since inflation is tame, wage growth is starting to pick up and unemployment is low and falling.  The far bigger challenge is to know how much of that virtuous cycle of capital expenditure and consumer spending is being financed by assets themselves that are increasing in value.  When those same assets fall in value, the capital gains fuel that was being burned to grow the economy dries up, which can lead to a recession even though economic conditions looked wonderful at the time that asset values began to fall.  What’s more, it’s very difficult to know just how much values would have to fall due to some unforeseen shock in order to have a material impact on the economy that could result in a recession.  The problem is that we often don’t know what the answer is until after it’s too late.  Towards the peak of the subprime housing bubble, there were more than a few talking heads claiming that the economy could survive a housing downturn because unemployment was low and economic expansion was robust with the consumer leading the way.  The problem was that very few people ultimately saw that those factors were largely being driven by real estate gains that were fueled by bullshit.  When those gains slowed and ultimately stopped, the result wasn’t pretty.  I think that Brown ended his post on a perfect note:

Sometimes markets are a leading indicator, and sometimes they actually cause changes in the economies they are meant to reflect. George Soros calls this reflexivity. It’s a thing.

Indeed, George Soros became a billionaire many times over by figuring out this reflexive cycle better than pretty much anyone else.  There is nothing wrong with being bullish on the economy, just keep in mind that things can and do sometimes turn sour for reasons that don’t seem obvious ahead of time.


Rise of the Machines: A new tax incentive that allows companies to immediately deduct the entire cost of equipment purchases from their taxable income is encouraging capital investment which means replacing old equipment by putting more robots on factory floors.

Hand Brake: Are too many mergers in America’s heartland to blame for pay raises lagging economic growth over the past few years?

Chugging Ahead: It may not be spectacular but the US economy continues to grow at a steady pace.


Unbalanced: There is plenty of office space getting built in the US but almost none of it is in the suburbs with downtown taking a disproportionate share.

Few and Far Between: Colony founder Tom Barrack sees an environment where hardly any real estate is underpriced.


Hypocrites with a Capital H: The Sierra Club now opposes Scott Weiner’s transit density bill – possibly the most important climate and environmental bill in California.  I wonder why…. (hint: it starts with N and rhymes with Quimbys).

Back to Break Even: The US housing market has gained back all $9 trillion in value lost during the Great Recession, but an uneven recovery means that some market still lag.


Dodging Bullets: Bitcoin miners in Venezuela face insane risks like government extortion and police raids on a daily basis as they fight for survival amid national chaos.

It’s All a Lie: People are spending a ton of money to buy armies of bot “followers” in order to make their social media influence appear much larger than it really is.

Can’t Have it All: Sir Isaac Newton was a scientific genius but a really shitty investor.

Chart of the Day

It would be an understatement to say that the housing market is tight right now.

• New home prices (both the mean and the median) hit a record high.

• Sales of new luxury homes have picked up.

• New homes don’t sit on the market for very long.

Source:The Daily Shot


Fishy Situation: Security cameras caught a pet store thief shoving live fish down his pants because, Florida.

Bottom of the Barrel: A new ranking by the website Thrillist finds that “Florida is the worst state in the nation in every way,” which is only surprising if you have never been to a non-coastal part of Florida or do not have an internet connection.

Assault and Burrito: Police are looking for a Taco Bell worker in South Carolina who hit his manager with a burrito during an argument (h/t Steve Sims)

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