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Landmark Links May 12th – Deep Thoughts

Seven Things I Think I Think

  1. Despite a slow start, the federal rescue package has been mostly effective so far.  However, unless employment ramps back up substantially a lot of the economic pain will be felt in August and beyond when enhanced unemployment burns off  With a general election in November, we are in for a bumpy ride.
  2. Much has been written in recent years about how Airbnb is pushing rents higher.  We are about to find out if that is true in real-time.
  3. Masks are going to become a major fashion opportunity for brands that have been suffering from low sales.  I suspect that the peak in this trend will be in when we start seeing mask pop up stores in retail spaces that are vacant due to the COVID economic crash.
  4. There seems to be a fairly wide consensus view that this pandemic will result in on-shoring of the manufacturing component of the supply chain.  Its a nice story but I’m not buying it.  If anything, this sort of environment plays into the hands of large contract manufacturers abroad who can achieve massive economies of scale by contracting out their services.
  5. Between a supply glut and 0% interest rates, the second half of 2020 is going to be a great opportunity to buy a new or used car.
  6. The virtual learning Zoom experiment that schools are undergoing is going to ruin the joy of snow days for future generations of children.
  7. A comment that I made a few weeks ago in one of these “thoughts” posts about whether hot dogs (they are), tacos (they aren’t) and quesadillas (the can be) are sandwiches generated more engagement than anything else I’ve ever posted.  This says far more about you than it does about me.

What I’m Reading

Calling the Bluff: The market no longer believes that the Fed means what it says about avoiding negative interest rates.  As an aside, the 30-day Libor is now in-line with the Fed Funds Rate, after having been substantially above it in recent weeks.

Licking Their Chops: The largest home-leasing platforms currently have strong occupancy, rent collection and expect demand for suburban houses to rise.

And So It Begins: Colony Capital has defaulted on $3.2 billion in loans backed by hotel and health care properties.

Crowded Out: Regulators came down so hard on banks during the mortgage crisis that many of them exited the mortgage market.  The void that they left was filled by non-bank lenders who are not particularly well capitalized.  The non-banks also handle servicing for roughly half of the mortgage market.  With little cushion available, the wave of forbearance requests from COVID has exposed a systemic problem as servicers are obligated to continue to pay bondholders even if the borrower doesn’t pay.  If forbearance requests reach the mid-to-high-teens, nearly all servicers will run out of cash to pay their obligations.

Vultures Circling: There is plenty of investor interest in buying distressed debt.  The opportunities are not there yet but the clock is ticking, especially in retail and hospitality.

Broken Chain: Mass meat packing plant shutdowns could potentially disrupt the US food supply chain for years.

Running on Empty: The fact that there are still nearly-empty planes flying is an example of how complex airline scheduling is.

Chart of the Day

As with most economic crashes, the impacts of this one are not being evenly felt.

Source: The Washington Post

Source: Wall Street Journal

WTF

Get Off My Lawn: A 79-year-old man and 75-year-old woman were arrested Friday night after a flare gun was shot multiple times at a person who arrived to serve legal papers because Florida.

Test Drive: Ikea is tightening security in its stores after a woman was caught on camera masturbating while half-naked in one of its Chinese stores.

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

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