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Landmark Links June 24th – Sneak Attack

One Big Thing

In the wake of the Great Recession, the Federal Reserve and Treasury poured trillions of dollars into the banking sector.  However, this money was held on bank balance sheets as excess reserves rather than lent, meaning that it didn’t lead to high levels of inflation.  Today, the Federal Reserve and Treasury are once again pouring trillions into the economy – this time at an even faster rate.  However, unlike the past crisis, the money is going directly into the hands of consumers (M1 and M2 money supply), which is potentially far more inflationary than what happens if it ends up stuck on bank balance sheets.

I have admittedly been off the inflationary bandwagon for the better part of the last decade.  It’s been a sucker’s bet for years now and interest rates certainly don’t seem to be pointing in that direction.  However, a recent Masters in Business podcast with professor Jeremy Siegel of Wharton has me questioning that position (h/t Tim Hogan).  In the podcast, Siegel goes into great detail about why today’s monetary and fiscal policy is more likely to be inflationary than that of the last recession.  While Siegel certainly doesn’t predict anything near hyperinflation, he does make a case that the 10-year treasury could be headed back above 4% a lot sooner than the market is currently anticipating.  Obviously this would have huge implications for the real estate market.  While this is a very contrarian view at the moment, Siegel has been right a lot more often than he has been wrong and this podcast – especially the first 20 minutes – is well worth the listen.

What I’m Reading

Shared Risk: The pandemic is pushing restaurants and their landlords in the direction of variable rents – where the base rate is lower but the landlord gets a percentage of sales in exchange – as a way to stay in business.

Hypocritical: Asset manager Brookfield is demanding full rent from its retail tenants while stiffing its lenders on loan payments.

Risky Business: The next risk for re-opening retail centers could be exposure to coronavirus-related lawsuits from customers and employees

Shortfall: Mall closings are devastating the towns that relied on them for local tax revenue.  This is why it is so difficult to re-entitle shuttered malls as much-needed residential.  Retail (or potentially returning retail) is a source of municipal revenue while residential use consumes services.  Its very difficult for cities to give that up, even if the retail is little more than a distant hope note.

What a Drag: State and local government austerity in the wake of the pandemic will put a dent in economic growth.

Chart of the Day

People are going out again but largely appear to be avoiding public transit and airplanes.

Source: Wall Street Journal

WTF

Special Delivery: A man stole a plane to bring 500 grams of weed to his girlfriend in California because Florida.

Topping of the Day: A pizza parlor was shut down by the Health Department after inspectors found a dead iguana in the freezer because Florida.

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

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