From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for January 2017

America’s calling Harry Truman..

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Harry Truman, written by Robert Lamm, recorded by Chicago:
America needs you
Harry Truman
Harry could you please come home
Things are looking bad
I know you would be mad
To see what kind of men
Prevail upon the land you love

America’s wondering
How we got here
Harry all we get is lies
We’re gettin’ safer cars
Rocket ships to mars
From men who’d sell us out
To get themselves a piece of power

We’d love to hear you speak your mind
In plain and simple ways
Call a spade a spade
Like you did back in the day
You would play piano
Each morning walk a mile
Speak of what was going down
Each honesty and style

America’s calling
Harry Truman
Harry you know what to do
The world is turnin’ round and losin’ lots of ground
Oh Harry is there something we can do to save the land we love
Oh woah woah woah

America’s calling
Harry Truman
Harry you know what to do
The world is turnin’ round
And losin’ lots of ground
So Harry is there something we can do to save the land we love
Harry is there something we can do to save the land we love
Harry is there something we can do to save the land we love

Written by Robert Lamm, Robert William Lamm • Copyright © Warner/Chappell Music, Inc, Spirit Music Group, BMG Rights Management US, LLC

Written by johnkilpatrick

January 31, 2017 at 4:46 am

Posted in Uncategorized

Tagged with , ,

Unilateral tariffs

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It occurs to me that a few people might not understand why unilateral tariffs against Mexico might be a suicidially bad idea, the global equivalent of “Hey, hold my beer while I try this!”

Here are a few random reasons, just off the top of my head, why this is an amazingly stupid idea… in no particular order…

  1. Any tariffs on imports from Mexico will be born, 100%, by American consumers, and generally those at the bottom tier of the consumption curve.
  2. It pisses off our one of our two nearest trading partners, and will undermine our relations with the other one.
  3. It opens the door for China to create and expand a hedgemony in the Pacific Rim….
  4. …which, in effect, nullifies the Monroe Doctrine (3 & 4 being the most devastating problem — no one in the Pacific Rim will trust us ever again).
  5. Since the left coast of our country is vitally dependent on Pacific Rim trade, it’s…. well… I’ve already used the word suicide.  Given that Washington, Oregon,  Hawaii, and California didn’t vote for Trump, why does he care???
  6. We export zillions of things (trucks, airplanes, software, indie movies, timber, building products, video games, wine — just to name the things that come from MY ZIP CODE) to the Pacific Rim.  Kiss those asses goodbye.
  7. Google “Smoot Hawley Tariff Act of 1939” and see what you get.
  8. Unilateral shifts in complex demand curves are theoretically unsupported (OK, that one requires a bit of graduate level econ, but bear with me here.)
  9. On a practical level, I can now import anything I want from El Salvador at a price 1% higher than I previously received from Mexico.  Thus,  I’ve simply baked in a 1% consumer inflation to be borne entirely by folks who shop at Wal Mart (see #1 above).
  10. Oh Christ it’s such a stupid idea….

Written by johnkilpatrick

January 26, 2017 at 3:42 pm

Posted in Economy, Finance, Inflation, Uncategorized

Tagged with , , ,

A brief word about leadership

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If you ever get the chance to visit a Marine unit in the field, do so at mealtime.  You’ll note that the lowest private gets fed first.  Then the sergeants.  Then the officers.  If the Commandant of the Marine Corps happens to be there, he eats last.  This may sound like a trivial issue, but its usually the trivial stuff that conveys the most important messages.  Full disclosure — I was not a Marine, I hung out briefly in the Navy and the National Guard, but had a brother in law, a nephew, and many good friends who served in the Corps.  If I had to do it over again, I would head to Quantico in a heartbeat.  Second piece of full disclosure — every person who gets elevated to a leadership role at Greenfield gets a copy of David Freedman’s excellent book, Corps Business, the 30 Management Princples of the U.S. Marines.  I cannot recommend it too highly.

Leadership is a sacred thing, on an international scale purchased with lives and national treasure.  Since World War II, the United States has been the essential nation,  exerting leadership directly in the free world and indirectly in the rest of it.  This does not come without an ongoing cost, but by and large Americans have enjoyed a standard of living far superior to that seen anywhere else on the globe.  In the long run, it works that way.  Marine officers eat last in the field, and are the first to jump off the helicopter in the landing zone.  On the other hand, there’s better liquor in the officers club, and Generals get padded chairs.

That said, I was terribly disturbed at the inaugural address, and particularly how it’s been interpreted abroad.  In short, we have gone from a role of leadership to a role of “America First, and everyone else last.”  (History note — google America First and see what you get.)  In the long run, this is an economically suicidal strategy.  (History note — google “protectionism” and “Smoot Hartley Tariff Act” and see what you get.). Now, apparently, we want to be the first ones in line to get fed, and the last ones to jump off the helicopter in the LZ.  Sigh….. we’ll see how this turns out.  Fortunately, the White House has promised us “alternate facts”, so perhaps it won’t seem so bad in the 1984-sequel we seem to be living.

Vinyl record sales

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First, a big caveat — this post is NOT going where you think it’s going.  It’s only peripherally about vinyl record sales.

Second, I’ve made my peace with digital music.  Thanks to somewhat degraded hearing (not deaf, but you know…) I don’t pick up the subtleties of vinyl records.  Don’t get me wrong, I’m absolutely in love with rock music, particularly some of the new stuff that’s better than we give it credit, but my ears are not dexterous enough to appreciate vinyl.  That said, vinyl record sales in 2017 are expected to top $1 Billion.  I’ll let that sink in for a minute, because back in the day, my expenses on turntables, speakers, headphones, etc, dwarfed my actual expenditures on vinyl records.  Add it all up, and this is a huge business.  There continues to be a huge amount of money in this world, and inventive people who figure out ways to market to the demands of folks who have that money, or who have needs in the 21st century, will prosper.

Which leads me inexorably to entrepreneurism.  The story 0f the internet revolution has been one of entrepreneurism.  I won’t belabor it, only to note that a bunch of college-age kids (often drop-outs — I’m looking at you, Bill Gates) took IBM, DEC, Wang, Amdall, and a bunch of others out back of the barn.  I was in the supercomputer biz in 1990-1994 (as an academic, running a scholarly program) and I can tell you NONE of the big-ass suit-and-tie companies I was working with then are still in biz, save for Intel that saw the writing on the wall and got out of supercomputers and back into chips where they belonged.  In short, great strides foward in our economy have been made — indeed, have always been made — by entrepreneurs, usually working tirelessly in the shadows.

Which leads me to Robert Henlein.  If you haven’t read him, he’s one of the deepest of the deep thinking science fiction authors.  Among the top four or five on everyone’s list.  Naval Academy (which is where I met him, as a 19-year-old midshipman, 40+ years ago), then a masters in engineering, washed up by 30 with tuberculosis, he dragged himself up to become a masterful writer.  Stranger in a Strange Land  alone has spawned an untold number of PH.Ds.  In creating his fictional worlds, he noted that new colonies always thrived quicker and better than the monther planet.  Why, you say?  Because it takes a certain gumption, a certain spirit, a certain amount of energy, to jump on a boat on the high seas (or, in his case, in outer space) and take a risk on a new place.  The western U.S. thrived because disillusioned Civil War vets — blue and grey — struck out for a new land with new opportunities.  Heinlein, an early 20th century Coloradan, saw that first hand.

Which leads me to the wet-foot-dry-foot rule, and all that accompanies it.  I note that the Obama administration, for reasons I don’t fully grasp, suddenly suspended the rule this past week.  I had the opportunity to go to Cuba last January, and was amazed and overwhelmed buy the entrepreneurship of the people.  It’s tough to eek out a living in a totalitarian, centrally-planned dictatorship, but many people seem to do it in a style we can only hope to emulate.  As a west-coaster, I’ve seen how the influx of Asian immigrants have fueled the entrepreneurship of the internet age.  As a native of the south, steeped in east-coast-ness, I know how our country has been fueled by wave after wave of immigrants from every corner of our planet.  In every one of our major cities there is a jewish tailor, there’s a mid-easterner with a falafel stand, an Indian with a hotel, a Chinese merchant, an Italian eatery, a Nisei left with nothing at the end of WW II who started a business and built a fortune.  These may seem like stereotypes, but these stereotypes built the nation I call home, and swore to defend w-a-a-a-ay back when.  I spend a bunch of my time in Key West, where eastern Europeans have built some nice homes by setting up janitorial businesses and t-shirt shops, doing work I wouldn’t do.

I agree — the laws should be followed, and illegal immigration should be dealt with.  But how?  Arguably, the deck has been stacked terrifically against brown skinned folks and in favor of people who look and sound like me.   The folks who we endeavor to keep out are often the most inventive, figuring out how to make markets out of janitorial services, falafel stands, and yes, selling vinyl records to music afficianados.  I’d like to keep America great, and I would argue that only with a constant influx of new, inventive, aggressive, creative blood, that may be a problem.

Written by johnkilpatrick

January 17, 2017 at 2:08 pm

Posted in Economy, Uncategorized

Mueller’s Market Cycle Monitor

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I was giving a brief presentation on real estate two weeks ago, and mentioned Glenn Mueller’s great Market Cycle Monitor, which is actually owned and produced by Dividend Capital Research in Denver.  Dr. Mueller is a professor at Denver U, and the Market Cycle Monitor stems from a paper he wrote back in the 1990’s.  The Monitor basically examines commercial real estate across four phases — recovery, expansion, hypersupply, and recession.  It then examines real estate subsectors across these phases (suburban offices, downtown offices, factory outlet retail, etc.) and then examines the top markets in the top 55 geographic markets.  If all of this seems massively complicated, Dr. Mueller makes it relatively easy to understand, with great explanations of his graphical presentations.

By the way, the four phases are determined in the context of rising and falling occupancy, rents, and new construction.  Thus, a property type or market in recovery evidences declining vacancy rates and no new construction, which leads to rising rents and values.  The expansion phase is marked when the market or property type occupancy rises above  the long term occupancy average, and that phase evidences continued declining vacancy and some new construction.  After occupancy peaks, and begins to decline, the market or property type enters the hypersupply phase, marked by increasing vacancy yet continued new construction.  A property type or market enters the recession phase when occupancy falls below long term averages, and yet increasing vacancy rates are met with increased completions of new properties.   The report goes on to explain the impacts on rents, rent changes, and how rental rates interact with construction feasibility at different levels of the cycle.  Simply reading the Market Cycle Monitor is a great primer on how commercial real estate markets work.

Simply collecting the data is a bear, so there is usually a 2 month delay producing the report.  The most recent report covers the 3rd quarter, 2016, and was produced in late November.  While the report covers 55 markets and 12 different property type sub-markets, the data generally spans five major property types — office, industrial, apartments, retail, and hotels.  Three of the five sectors (office, industrial, and retail) had improving occupancy in 3Q16 and improving rents.  Hotel occupancy was flat, but room rates actually increased, albeit at only 2.2% annually.  Apartment occupancy actually declined 0.1% in 3Q16, but room rates increased at an annual rate of 3.2%.

The remainder of the report is packed with great information, and extremely readable.  Check with Dividend Capital for a copy, or send me an e-mail.

Written by johnkilpatrick

January 11, 2017 at 9:33 am

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