COVID Economy

[jesmu84]

Educate yourself.

https://www.wsj.com/articles/a-koch-brother-is-betting-big-on-distressed-real-estate-11614690003

https://fortune.com/2021/03/02/koch-real-estate-industries-pandemic/

https://www.theguardian.com/us-news/2021/may/21/charles-koch-foundation-eviction-real-estate

https://www.foxnews.com/media/blackrock-investment-firms-killing-dream-home-ownership

It continues

[JWags85]

The role of pension funds in all of this is very interesting.  My fiancee works for an investment firm that owns and operates multi family rental complexes.  The vast majority of their money these days is pension funds, which is a pronounced shift from the past.  And a good number of those funds have shifted HUGE swathes of their capital into real estate.  A few have completely divested from traditional equity and bond markets into almost all RE of some sort.  And before you assume its the guidance and urging of their Wall St partners, her firm and many others like her, despite certifications, are exclusively commercial real estate investors.  So its an internal pension fund management decision to move their capital there.

[MU82]

Another economic victim of COVID-19: Girl Scouts (and their cookies).

https://www.nytimes.com/2021/06/15/us/girl-scouts-cookie-sales-membership.html?campaign_id=4&emc=edit_dk_20210616&instance_id=33101&nl=dealbook&regi_id=108420427&segment_id=60786&te=1&user_id=d36dcf821462fdd16ec3636710a855fa

The Girl Scouts are struggling to sell a heaping pile of extra cookies: 15 million boxes of them, to be exact.

Troops with armfuls of cookies used to be a fixture outside grocery stores and on people’s doorsteps. But this year, those cookies are stuck in warehouses after Girl Scouts of the U.S.A. was confronted with two major obstacles during the pandemic: membership has declined, and the scouts had to abandon their usual in-person selling methods.

Those problems left the national organization with millions of extra Thin Mints, Samoas and other signature treats. Around 12 million of the 15 million surplus cookies never left the bakery warehouses in Kentucky and Indiana, the Girl Scouts said in a statement on Tuesday.

“Given that a majority of cookies are sold in person by girls at booths or other face-to-face methods, a decrease in sales was to be expected,” Kelly Parisi, a Girl Scouts spokeswoman, said in the statement.

The organization sells around 200 million boxes per year at about $5 a box. The Girl Scouts have been selling cookies for over a century.

Individual troops sell cookies in their community, and scouts earn badges when they sell a certain number of boxes. Troops sell the cookies at booths, at events, outside stores and online. The cookies are typically sold in the first four months of the year.

“It’s exceedingly rare to have significant excess inventory, but the pandemic greatly impacted our cookie program,” Ms. Parisi said.

[JWags85]

I didn’t realize Girl Scout Cookies were a literal billion dollar industry.  That’s insane

[TSmith34, Inc.]

The girl scouts are free to stop over at my house with any extra boxes of Samoas.

[lawdog77]

State of Indiana being sued for stopping PUA

https://www.businessinsider.com/unemployment-benefits-early-termination-indiana-lawsuit-2021-6

[MU82]

Here is what I think is an interesting column by Yahoo Finance editor Andy Serwer. It isn't behind a paywall, so I'll just cut-and-paste the whole shebang.

Disclosure: I agree with this take ...

+++

Prices of everything; a house in Phoenix, a Ford F-150, a plane ticket to New York, have all gone up. That much is true.‌

Unfortunately pretty much everything else about inflation—a red hot topic these days—is conjecture. And that’s vexing, not just for the dismal scientists (aka economists), but for all of us, because whether or not prices are really rising, by how much and for how long, has massive implications in our lives. Or as Mark Zandi, chief economist at Moody’s Analytics, says: “Inflation is one of the mysteries of economic study and thought. A difficult thing to gauge and forecast and get right. That’s why the risks are high.”‌

The current debate over inflation really revolves around two questions: First, is this current spate of inflation, just that, a spate—or to use Wall Street’s buzzword of the moment, “transitory,”—or not? (Just to give you an idea of how buzzy, when I Google the word “transitory” the search engine suggests “inflation” after it.) And second, transitory (aka temporary) inflation or not, what does it suggest for the economy and markets?

Before I get into that, let me lay out what’s going on with prices right now. First, know that inflation, which peaked in 1980 at an annualized rate of 13.55%, has been tame for quite some time, specifically 4% or less for nearly 30 years. Which means that anyone 40 years old or younger has no experience with inflation other than maybe from an Econ 101 textbook. Obviously that could be a problem.‌

As an aside I remember President Ford in 1974 trying to jawbone inflation down with his "Whip Inflation Now" campaign, which featured “Win” buttons, earrings and even ugly sweaters. None of this worked and it took draconian measures by Fed Chair Paul Volcker (raising rates and targeting money supply, as described by Former President of the Federal Reserve Bank of St. Louis, William Poole) to eventually tame inflation and keep it under wraps for all those years.‌

Until now perhaps. Last week the Labor Department reported that consumer prices (the CPI, or consumer price index) rose 5% in May, the fastest annual rate in nearly 13 years—which was when the economy was overheating from the housing boom which subsequently went bust and sent the economy off a cliff and into the Great Recession. Core inflation, which excludes volatile food and energy prices, was up 3.8%, the biggest increase since May 1992. (For the record, the likelihood of the economy tanking right now is de minimis.)‌

Used car and truck prices are a major driver of inflation, climbing 7.3% last month and 29.7% over the past year. New car prices are up too, which have pushed up shares of Ford and GM a remarkable 40% plus this year. Clearly Americans want to buy vehicles to go on vacation and get back to work. And Yahoo Finance’s Janna Herron reports that rents are rising at their fastest pace in 15 years.

To be sure, not all prices are climbing. As Yahoo Finance’s Rick Newman points out, prices are not up much at all for health care, education and are basically flat for technology, including computers, smartphones and internet service (an important point which we’ll get back to.)

But that’s the counterpoint really. Americans are obsessed with cars, housing is critical and many of us are experiencing sticker shock booking travel this summer. Higher prices are front and center. Wall Street too is in a tizzy about inflation, and concerns about it and more importantly Federal Reserve policy in response to inflation (see below), sent stocks lower with the S&P 500 down 1.91% this week, its worst week since February.

Given this backdrop, the tension (such as it is) was high when the Fed met this week to deliver its forecast and for Chair Jay Powell to answer questions from the media. Or at least so said hedge fund honcho Paul Tudor Jones, who characterized the proceedings on CNBC as “the most important meeting in [Chairman] Jay Powell’s career, certainly the most important Fed meeting of the past four or five years.” Jones was critical of the Fed, which he believes is now stimulating the economy unnecessarily by keeping interest rates low and by buying financial assets. Unnecessarily, Jones says, because the economy is already running hot and needs no support. The Fed (which is in the transitory camp when it comes to inflation) risks overheating the economy by creating runaway inflation, according to PTJ.

Now I don’t see eye to eye with Jones on this, though I should point out, he's a billionaire from investing in financial markets, and let’s just say I’m not. I should also point out that Jones, 66, is in fact old enough to remember inflation, never mind that as a young man he called the 1987 stock market crash. So we should all ignore Jones at our peril.

As for what the Fed put forth this past Wednesday, well it wasn’t much, signaling an expectation of raising interest rates twice by the end of 2023 (yes, that is down the road.) And Powell, who’s become much more adept at not rippling the waters these days after some rougher forays earlier in his tenure, didn’t drop any bombshells in the presser.

Which brings us to the question of why the Federal Reserve isn’t so concerned about inflation and thinks it is mostly—here’s that word again—transitory. To answer that, we need to first address why prices are rising right now, which can be summed up in one very familiar abbreviation: COVID-19. When COVID hit last spring the economy collapsed, which crushed demand in sectors like leisure, travel and retail. Now the economy is roaring back to life and businesses can raise prices, certainly over 2020 levels.

“We clearly should’ve expected it,” says William Spriggs, chief economist at the AFL-CIO and a professor of economics at Howard University. “You can’t shut down the economy and think you turn on the switch [without some inflation].”

“We had a pandemic that forced an artificial shutdown of the economy in a way that even the collapse of the financial system and the housing market didn’t, and we had a snapback at a rate we’ve never seen before—not because of the fundamentals driving recovery but because of government,” says Joel Naroff, president and chief economist of Naroff Economics.

COVID had other secondary effects on the economy though, besides just ultimately producing a snapback. For one thing, the pandemic throttled supply chains, specifically the shipping of parts and components from one part of the globe to another. It also confused managers about how much to produce and therefore how many parts to order.

A prime example here is what happened to the chip (semiconductor) and auto industries which I wrote about last month. Car makers thought no one would buy vehicles during the pandemic and pared back their orders with chipmakers, (which were having a tough time shipping their chips anyway.) Turned out the car guys were wrong, millions of people wanted cars and trucks, but the automakers didn’t have enough chips for their cars and had to curb production. Fewer vehicles and strong demand led to higher new car prices, which cascaded to used car prices then to car rental rates. Net net, all the friction and slowness of getting things delivered now adds to costs which causes companies to raise prices.

Another secondary effect of COVID which has been inflationary comes from employment, which I got into a bit last week. We all know millions were thrown out of work by COVID last year, many of whom were backstopped by government payments that could add up to $600 a week (state and federal.) These folks have been none too keen on coming back to work for minimum wage, or $290 a week. So to lure them back employers are having to pay more, which puts more money in people's pockets which allows stores for example to raise prices.

But here’s the big-time question: If COVID was temporary, and therefore its effects are temporary and inflation is one of its effects then doesn’t it follow, ipso facto, that inflation is (OK I’ll say it again), transitory?

I say yes, (with a bit of a caveat.) And most economists, like Claudia Sahm, a senior fellow at the Jain Family Institute and a former Federal Reserve economist, agree. “‘Transitory’ has become a buzzword,” she says. “It is important to be more concrete about what we mean by that. We’re probably going to see in the next few months inflation numbers that are bigger than average, but as long as they keep stepping down, that’s the sign of it being transitory. If we didn’t see any sign of inflation stepping down some, it would’ve started feeling like ‘Houston, we have a problem.’”

To buttress my argument beyond that above "if-then" syllogism, let’s take a look at why inflation has been so low for the past three decades.
To me this is mostly obvious. Prices have been tamped down by the greatest anti-inflation force of our lifetime, that being technology, specifically the explosion of consumer technology. Think about it. The first wave of technology, a good example would be IBM mainframes, saved big companies money in back-office functions, savings which they mostly kept for themselves (higher profits) and their shareholders. But the four great landmark events in the advent of consumer technology; the introduction of the PC in 1974 (MITS Altair), the Netscape IPO of 1995, Google search in 1998, and the launch of the iPhone in 2007 (I remember Steve Jobs demoing it to me like it was yesterday), greatly accelerated, broadened and deepened this deflationary trend.

Not only has technology been pushing down the cost of everything from drilling for oil, to manufacturing clothes to farming, and allowing for the creation of groundbreaking (and deflationary) competitors like Uber, Airbnb and Netflix, but it also let consumers find—on their phones—the most affordable trip to Hawaii, the least expensive haircut or the best deal on Nikes.

So technology has reduced the cost of almost everything and will continue to do so the rest of our lifetime. Bottom line: Unless something terrible happens, the power of technology will outweigh and outlive COVID.

There is one mitigating factor and that is globalism, which is connected to both technology and COVID. Let me briefly explain.

After World War II, most of humanity has become more and more connected in terms of trade, communication, travel, etc. (See supply chain above.) Technology of course was a major enabler here; better ships, planes and faster internet, all of which as it grew more potent, accelerated globalism. Another element was the introduction of political constructs like the World Trade Organization and NAFTA. (I think of the Clinton administration and China joining the WTO in 2001 as perhaps the high-water marks of globalization.)

Like its technological cousin, globalism has deflationary effects particularly on the labor front as companies could more and more easily find lowest cost countries to produce goods and source materials. And like technology, globalization seemed inexorable, which it was, until it wasn’t. Political winds, manifested by the likes of Brexit and leaders like Putin, Xi Jinping, Erdogan, Bolsonaro, Duterte and of course Donald Trump have caused globalism to wane and anti-globalism and nationalism to wax.

The internet too, once seen as only a great connector, has also become a global divider, as the world increasingly fractures into Chinese, U.S. and European walled digital zones when it comes to social media and search for example. Security risks, privacy, spying and hacking of course divide us further here too.‌

So technology, which had made globalism stronger and stronger, now also makes it weaker and weaker.

COVID plays a role in rethinking globalism as it exposes vulnerabilities in the supply chain. Companies that were rethinking their manufacturing in China but considering another country, are now wondering if it just makes sense to repatriate the whole shebang. Supply chains that were optimized for cost only are being rethought with security and reliability being factored in and that costs money.

How significant is this decline in globalization and how permanent is it? Good questions. But my point here is whether or not "globalism disrupted" is transitory (!) or not, it could push prices up, (in the short and intermediate run at least), as cost is sacrificed for predictability. Longer term I say Americans are a resourceful people. We’ll figure out how to make cost effective stuff in the U.S. It’s also likely that globalism will trend upward again, though perhaps not as unfettered as it once was.

More downward pressure on pricing could come from shifts in employment practices. Mark Zandi points out that “the work-from-anywhere dynamic could depress wage growth and prices. If I don’t need to work in New York anymore and could live in Tampa, it stands to reason my wage could get cut or I won’t get the same wage increase in the future.”

And so what is Zandi’s take on transitory? “What we’re observing now is prices going back to pre-pandemic,” he says. “The price spikes we’re experiencing now will continue for the next few months through summer but certainly by the end of year, this time next year, they will have disappeared. I do think underlying inflation will be higher post-pandemic than pre-pandemic, but that’s a feature not a bug.”

I don’t disagree. To me it’s simple: The technology wave I’ve described above is bigger than COVID and bigger than the rise and fall of globalism. And that is why, ladies and gentlemen, I believe inflation will be transitory, certainly in the long run. (Though I’m well aware of what John Maynard Keynes said about the long run.)

[Hards Alumni]

Okay, I'll be that guy.  I never read the articles when you post them at full length like this.   

[ZiggysFryBoy]

Okay, I'll be that guy.  I never read the articles when you post them at full length like this.   

bUt He SuPpOrTs JoUrNaLiSm.

[MU82]

bUt He SuPpOrTs JoUrNaLiSm.

And you don’t, but that’s ok.

Have a nice night.

[TSmith34, Inc.]

bUt He SuPpOrTs JoUrNaLiSm.

It's a free article. But sure, disingenuously suggest posting a free article means 82 doesn't support journalism if that give you jollies, I guess.

[cheebs09]

It's a free article. But sure, disingenuously suggest posting a free article means 82 doesn't support journalism if that give you jollies, I guess.

I thought some people got some heat here for posting full Matt V articles even though they weren’t behind a paywall. We were supposed to click through so he got the credit for the page hits. It led to only posting a few sentences of the article so people would read on jsonline.

[MU82]

I thought some people got some heat here for posting full Matt V articles even though they weren’t behind a paywall. We were supposed to click through so he got the credit for the page hits. It led to only posting a few sentences of the article so people would read on jsonline.

I always honor paywalls.

But if what I did here bothers some folks, from now on I'll do exactly what you suggest: A summary and a link.

A suggestion ... without a passive-aggressive (and baseless) accusation. I appreciate it, cheebs. Hope you're having a nice Father's Day.

[cheebs09]

A suggestion ... without a passive-aggressive (and baseless) accusation. I appreciate it, cheebs. Hope you're having a nice Father's Day.

Thanks! You too!

My first one so soaking it all in.

[MU82]

Thanks! You too!

My first one so soaking it all in.

Oh, that's fantastic. Believe it or not, Father's Day will get even better for you, too! When kids are 3 and older, they actually start to understand what the day means ... and they get really good at hugs, giving homemade gifts, helping make you breakfast, and all the good stuff.

This was my second as a grandfather, and both kids and their kids have already FaceTimed. So much fun!

[MU82]

Super-interesting article about the housing boom in Phoenix and, specifically, the way construction workers have to toil in dangerous heat:

https://www.nytimes.com/2021/06/20/us/100-degree-weather.html?campaign_id=9&emc=edit_nn_20210621&instance_id=33501&nl=the-morning&regi_id=108420427&segment_id=61277&te=1&user_id=d36dcf821462fdd16ec3636710a855fa

PHOENIX — As the sun rose on another day of record-breaking heat, Juan Gutierrez and his construction crew were already sweating through their long-sleeve shirts. It was 91 degrees, and workers in a subdivision called Desert Oasis were racing to nail together the wooden skeletons of $380,000 homes that had sold before they were even built.

“Your skin falls off, you have to cover up everything,” said Mr. Gutierrez, 22, who has been undocumented since he came to the United States as a 4-year-old. “It’s work you have to do. You have no choice.”

Related:

I was visiting friends in Phoenix at the end of the recession in 2010 and housing was so cheap that the term "dirt cheap" didn't do it justice. Active senior communities were so desperate to sell foreclosed-upon villas that not only were they slashing prices but they were making them available to anybody over 45 - and even younger in certain circumstances. Houses in nice Scottsdale neighborhoods were selling in the mid-200s, a few that needed mostly cosmetic work were even selling below 200.

I was sooo tempted to buy some property there, but cash was tight, there was no way of knowing if the economy would improve in the next several years, and we didn't think being long-distance landlords sounded like a great plan. But those who had the $$$ and foresight to buy there then could have made out like bandits. I know that also was true for many other areas, but I just remember seeing those Phoenix and Scottsdale area homes and going, "Wow!"

[Billy Hoyle]

Super-interesting article about the housing boom in Phoenix and, specifically, the way construction workers have to toil in dangerous heat:

https://www.nytimes.com/2021/06/20/us/100-degree-weather.html?campaign_id=9&emc=edit_nn_20210621&instance_id=33501&nl=the-morning&regi_id=108420427&segment_id=61277&te=1&user_id=d36dcf821462fdd16ec3636710a855fa

PHOENIX — As the sun rose on another day of record-breaking heat, Juan Gutierrez and his construction crew were already sweating through their long-sleeve shirts. It was 91 degrees, and workers in a subdivision called Desert Oasis were racing to nail together the wooden skeletons of $380,000 homes that had sold before they were even built.

“Your skin falls off, you have to cover up everything,” said Mr. Gutierrez, 22, who has been undocumented since he came to the United States as a 4-year-old. “It’s work you have to do. You have no choice.”

Related:

I was visiting friends in Phoenix at the end of the recession in 2010 and housing was so cheap that the term "dirt cheap" didn't do it justice. Active senior communities were so desperate to sell foreclosed-upon villas that not only were they slashing prices but they were making them available to anybody over 45 - and even younger in certain circumstances. Houses in nice Scottsdale neighborhoods were selling in the mid-200s, a few that needed mostly cosmetic work were even selling below 200.

I was sooo tempted to buy some property there, but cash was tight, there was no way of knowing if the economy would improve in the next several years, and we didn't think being long-distance landlords sounded like a great plan. But those who had the $$$ and foresight to buy there then could have made out like bandits. I know that also was true for many other areas, but I just remember seeing those Phoenix and Scottsdale area homes and going, "Wow!"

my buddy left college coaching to become a real estate agent after a health scare. He's been killing it over the last six months. With lumber prices as they have been it's no surprise housing prices are up with new construction - a combination of supply and cost of production. Quality, however, will be way down as these houses become rush jobs.

My condo is up nearly $40K since when I bought in August.

[MU82]

my buddy left college coaching to become a real estate agent after a health scare. He's been killing it over the last six months. With lumber prices as they have been it's no surprise housing prices are up with new construction - a combination of supply and cost of production. Quality, however, will be way down as these houses become rush jobs.

My condo is up nearly $40K since when I bought in August.

Here in Charlotte, there is such a shortage of houses on the market that realtors are grumbling about the lack of work and lack of chances to make money. Some have had to lay off staff.

We've lived in a fairly popular, moderately priced (for the area), 180-home subdivision since 2011, and there were almost always 2-4 houses on the market. Well, there hasn't been a single house in this neighborhood on the market since the last one sold on Jan. 4. Six months, and not even a listing, let alone a sale!

[Billy Hoyle]

Here in Charlotte, there is such a shortage of houses on the market that realtors are grumbling about the lack of work and lack of chances to make money. Some have had to lay off staff.

We've lived in a fairly popular, moderately priced (for the area), 180-home subdivision since 2011, and there were almost always 2-4 houses on the market. Well, there hasn't been a single house in this neighborhood on the market since the last one sold on Jan. 4. Six months, and not even a listing, let alone a sale!

I was actually surprised when a former NBA player's ridiculous house went for $75K under asking last month after only a week on the market. Only $3.125 million.

[TSmith34, Inc.]

Here in Charlotte, there is such a shortage of houses on the market that realtors are grumbling about the lack of work and lack of chances to make money. Some have had to lay off staff.

We've lived in a fairly popular, moderately priced (for the area), 180-home subdivision since 2011, and there were almost always 2-4 houses on the market. Well, there hasn't been a single house in this neighborhood on the market since the last one sold on Jan. 4. Six months, and not even a listing, let alone a sale!

Same here, I've had three realtors tell me they are making just about the same as they were in more normal times. What they have gained due to rapidly inflating prices has been countered by restricted volume of properties to sell.

[The Lens]

Same here, I've had three realtors tell me they are making just about the same as they were in more normal times. What they have gained due to rapidly inflating prices has been countered by restricted volume of properties to sell.

Supply is down, not a realtors dream.  Pair that with having to sort through 37 offers on one listing; gigantic time suck.

[Hards Alumni]

I was actually surprised when a former NBA player's ridiculous house went for $75K under asking last month after only a week on the market. Only $3.125 million.

2.4% price drop :-P

Having said that, depending on location, there are different price cut offs where you may find houses sitting around longer.  The houses that are moving at break neck speed are the 'entry' level houses.  Once we get to 750k (again this depends on location, and is just an example) places are around longer due to there being less people able to afford that price point.

[jesmu84]

https://www.bloomberg.com/opinion/articles/2021-06-17/america-should-become-a-nation-of-renters

Nevermind that building wealth in America relies on home ownership

[lawdog77]

Update on suit against Indiana governor for stopping PUA.

https://public.courts.in.gov/mycase/#/vw/CaseSummary/eyJ2Ijp7IkNhc2VUb2tlbiI6IjlxZ1lUVHdDZzl1NS10N1Rubjlmc3UteVczU2NJMUdGd3dqN2JPRjdmRWcxIn19

Apparently, Indiana has a statute that they must secure all rights and benefits available under certain federal statutes.

Case set for preliminary injunction tomorrow.

[MU82]

2.4% price drop :-P

Having said that, depending on location, there are different price cut offs where you may find houses sitting around longer.  The houses that are moving at break neck speed are the 'entry' level houses.  Once we get to 750k (again this depends on location, and is just an example) places are around longer due to there being less people able to afford that price point.

Definitely depends on location, as you said.

In the Seattle area, there are nice houses in nice neighborhoods listed for $1.3M that are going within 24 hours after getting multiple offers and selling for $1.5M or more.