From a small northwestern observatory…

Finance and economics generally focused on real estate

A bit about the election

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This is NOT about politics, per se.  Don’t get me wrong, I’m fairly politically active.  However, I try to focus this blog on the economy, real estate, and such and so-forth.  That said, the upcoming 2020 election is dominating the news (and will for the next 14 months, at least) and the mathematical model of getting to a “win” for the dems or the repubs is fascinating to say the least.  First, let’s reflect on the electoral map from 2016.  Note that this is ALL that matters — the dems won the popular vote hands-down in 2016, but lost because they seemingly forgot how the system actually works.


Now BECAUSE of the way the system works, about 70% of all electioneering dollars in 2016 were spent in 6 states.  Indeed, about 90% was spent in 12 states.  This is a function of two things.  First, Alaska has 3 electoral votes.  Plus, Alaska is decidedly and comfortably republican.  The dems ignored it, and the republicans just needed to remind folks that the election was on a Tuesday.  Texas has something of the opposite problem — huge, but again comfortably republican.  (There is some argument that this could potentially change in 2020, but no one is betting big bucks that way just yet.)

As an aside, in 1980, presidential elections were severely limited in spending.  It’s hard to remember, but those were the post-Watergate years, and the Congress was actually jealous of its power back then.  The republicans figured to spend all of their money in the mid-west and the west. California was republican back then, and the south was considered to be solidly in Carter’s camp.  Some republican operatives had a neat idea — what if we spend a LITTLE money in the south, and throw Carter off his game down there?  That was the real tipping point for turning the south from democrat to republican.  Lots of folks don’t remember that states like Georgia, South Carolina, and Virginia had prominent democrat power structures even into the 1980’s.  But, I digress…

This election — 2020 — will be fought in six states.  Period.  All of the money and all of the effort will go to (starting from the upper left and working our way down) Minnesota, Wisconsin, Michigan, Ohio, Pennsylvania, and Florida.  Collectively, these states have 103 electoral votes — over a third needed to win, and about three times the winning margin from 2016.  Whichever candidate carries a majority of the electoral votes in these six states will win.  Period.  Not much else matters.  (Yes, Virginia and North Carolina, I’m talking about you.)

Now, to get a sense of what’s happening, and why rallies in New Mexico and dinners in California don’t mean much, let’s look at the congressional map from 2018.  Polls lie, but electoral maps don’t…


Now, this is one of the most interesting maps I’ve seen in a while.  Focus on the ledgend for a minute.  This is broken down by the 435 congressional districts, all of which were in play in 2018.  The ones in grey can be ignored — either republican or democrat, the vote there didn’t change much (plus or minus 10%) from 2018.  For example, Alaska was republican and Hawaii democrat in 2016, and that didn’t change in 2019.  Dark blue states were democrat to start with, and became more-so.  Dark red states were republican to start with, and became more-so.  Dark red basically happened in three places — the rural southern Georgia/Alabama districts, rural eastern North Carolina, and rural California.  None of these four states is in play in 2018, so basically who cares?  Dark blue, on the other hand, happened in some key areas — Miami/Dade County, where the republicans usually hope to pick up conservative Cuban voters.  It happened in central and southern Wisconsin, central Ohio, central Florida, eastern Michigan, and the small but highly populated Minneapolis/St. Paul region of Minnesota.

More interestingly are the purple districts — these flipped from republican to democrat.  this happened a LOT across the country, but most significantly in south Florida (retiree-populated Monroe county, in particular, in eastern Pennsylvania, in two districts in the suburbs of Minneapolis, and in two districts in eastern Michigan.  Now, the republicans were not without their gains — two rural districts in Minnesota (which went blue in 2016) flipped to red.  Nonetheless, the bulk of the model right now heavily favors a blue wave in these six states, if the trends continue.  In 2016, the democrats ran a “national” campaign, and the republicans focused attention on key issues that would flip swing states.  Indeed, the democrats won the “national” campaign, with a plurality of the popular vote, but lost the war.

Clearly, there are some second-tier states that are teetering on the edge of becoming swing states.  Southern Arizona, with its significant Hispanic population, and the growing up-scale suburbs in North Carolina make these two states very interesting.  Iowa made some surprising shifts in 2018, but with only 6 electoral votes, they won’t get nearly the attention they deserve.

So, predictions?  I’m loathe to put money on this, but it will be an interesting time to be a voter in Broward county, Florida.

Written by johnkilpatrick

September 20, 2019 at 8:16 am

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Huh… busy week and it’s only Monday

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China buys two things from the United States:  agricultural products and Treasury bonds.  Thanks to our misguided attempts at a trade war, they’ve announced today that they’re going to quit buying one of those two items.  Indeed, for the past two decades, China has been working to expand their sources of basic resources, including foodstuffs. Other countries are happy to oblige.  Since 1970, Brazil has cut down about 20% of their rainforest, mainly for agriculture.  Most of the deforested Amazon is used for cattle grazing, and about 80% of that beef is exported (guess who buys it?).  Brazil is now also the world’s 2nd biggest producer of soy beans.  (Guess who buys THAT?).  Thanks to our U.S. trade policies, Brazil is poised to leap into first place.  By the way, the impact on the global biosphere is devastating, but that’s almost an afterthought.

Is this likely to cause a recession?  Coupled with the yield curve inverting, a slow-down in housing sales, and w-a-a-a-a-y too much Federal deficit spending, and all the signs are certainly there.  If there is one redeeming thing, it’s that so many of us recognize that a recession is likely at this point.

Written by johnkilpatrick

August 5, 2019 at 1:54 pm

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Lowe’s is laying off thousands

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Well, by itself, this is a startling headline (click here for the full story).  The CNN story blames it on needing to catch up with Home Depot and also right-sizing their inventory (which is, admittedly, huge).  Indeed, for several years, home remodeling has been the bright spot in the retail sector.

However, I’d also remind readers of my note about the remodeling sector from not long ago (click here for that story).  The homebuilding and home sales sectors have been reporting some softness, mainly cost driven, and that’s inexorably tied to home remodeling.  Intriguingly, the folks being laid off are generally in the assembly biz.

As a personal anecdote, I purchased a house in Key West not long ago, and immediately bought a new grill from Home Depot.  Not withstanding my normal “do-it-yourself” attitude about things, this particular grill was a multi-person job.  Home Depot was on the spot, and sent over a team to do the job (kuddo’s to the Home Depot in Key West, Florida!).  Had I not bought a house there, I wouldn’t have bought the grill, and the assemblers wouldn’t have had a job.  You do the math, folks….

Written by johnkilpatrick

August 1, 2019 at 1:01 pm

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Fed signals?

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The FED is expected to reduce its benchmark rate by 1/4 point today.  Market observers note that this is the first cut since the onset of the 2008 recession, and only the 5th time in 25 years that the FED has reversed from increasing to decreasing rates.

effective fed funds rate

The general role of the FED is to calm the waters, so to speak, and anticipate inflation or recessions.  Indeed, the powerful cut in 2008 was in response to a market on the precipice of an epochal recession.  Note that the most previous cut was in 2001, and before that in 1998. The 2001 cut was in response to an inverted yield curve and an impending recession, while the 1998 cut was in response to a close-call on the yield curve.  There were a series of cuts beginning in 1989 that foreshadowed the 1991/92 recession.

In a perfect world, FED rate cuts would forestall a recession.  In practice, however, all they can really do is soften the blow.


Written by johnkilpatrick

July 31, 2019 at 10:02 am

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Harvard Study Projects Remodeling Downtrend

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The good folks at the Joint Center for Housing Studies at Harvard (a well-respected old college near Boston) maintain, among other things, the Leading Indicator of Remodeling Activity.  Home remodeling is a pretty significant component of our nation’s economy, with about a third of a trillion dollars spent annually fixing up homes.  In recent years, remodeling has grown by 6% to 7% per year, fueling job growth and the bottom lines of many of our leading manufacturers and retailers.

However, remodeling is (and this may come as a surprise to the uninitiated) heavily tied to home purchases.  Lest we forget, most homes bought in America, in fact about 90%, are “used” homes.  Whether bought as an investment (rental property) or for owner-occupancy, the first thing most “used” home buyers do is some remodeling.  This may be as little as repainting some rooms all the way to a major kitchen or bath re-do, or even adding on rooms, re-habbing the heating and air system, or replacing a roof.  As home sales have soared in America in recent years, so have remodeling budgets.

However, tightening interest rates and increasing prices have led many forecasters to project declining home sales.  Indeed, my own research suggests that homeownership rates, having bottomed out at about 63% after the recession, are now approaching a more market-normal rate of about 65%.  Thus, any residual pent-up demand may have already been spent.

So, the folks at Harvard suggest that by the first quarter, 2020, the annualize average rate of growth in remodeling will decline precipitously, to about 2.6%.  Further, on an annulized basis, actual dollars spent on remodeling are projected to plateau in the fourth quarter of this year, with a seasonally adjusted decline in the 1st quarter, 2020.


Graphic courtesty Harvard JCHS

Of course, major components of the remodeling sector actually thrive during downturns.  Homeowners who otherwise might “move up” to a bigger house may spend those move-up dollars remodeling.  Further, houses need to be maintained, and stuff just wears out. Thus, any decline in remodeling spending may not be as severe as home sales downturns.  However, it’s worth noting.



Written by johnkilpatrick

June 13, 2019 at 6:41 am

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Robots — free from their cages?

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I’ve long posited that the principle threat to manufacturing jobs in the future will be the robot.  Indeed, in there are presently 84 robots for every 10,000 workers in America, and almost 200 for every 10,000 factory workers.  In Korea, there are over 500 robots for every 10,000 factory workers.  One of the big constraints holding back the proliferation of robotics is the danger of human-robot contact.  Robots are smart in some ways, but very dumb in a lot of others.  Add to that the fact that they are huge and powerful, and you can see why most — in fact nearly all — robots on a factory floor are kept in cages.  The fencing is there not to keep the robots in place (they’re usually bolted to the floor) but to keep people from wandering into one.


Many of you may have seen Youtube videos of walking robots, and indeed the military is making use of mobile robots on the battlefield for a variety of purposes.  However, on the factory floor, mobile robots are usually limited in both size and scope.  This could all change, however, with new software and sensor technology which was just rolled out today by Veo Robotics.  These tools give the robots spatial awareness, and a monitoring system slows or even stops a robot if an unexpected human-size object is within a geofenced area.  When the obstruction leaves or passes, the robot can then continue as programmed, allowing work to proceed.

Four of the largest robot manufacturers have partnered with Veo on this project, which uses Microsoft’s Xbox Kinect depth cameras as a sensing device.  (Veo says they are working on their own technology to replace the Xbox tools.)

According to Patrick Sobalvarro, VEO’s CEO, “What we hear from every factory, every line manager … is that they can’t hire enough production workers. The production labor workforce is aging out, and one of the things we see as an advantage of our system is that physical strength will no longer be required for production workers.”  A recent study by McKinsey & Company suggest that almost half of human activities in the workplace have the potential to be automated.

Magdalena Petrova of CNBC has a great article on this, along with a video.  Click here to take a peek.  I can’t help but think that this is one of the more important issues facing the American workforce and productivity right now.

Written by johnkilpatrick

June 10, 2019 at 12:46 pm

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The environment, the economy, and general welfare

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This is a bit off my normal subject, but I stumbled on this graphic this morning and wanted to share it.  I haven’t checked the author’s data or methodology, but the graphic generally follows pretty common logic.


The graphic basically shows that there is a positive correlation between environmental performance and “happiness” (or general welfare, if you will).  That makes some sense.  I was pleased to see how well the United States scored on both metrics, but that’s an aside.

More to the point, this graphic is an example of two effects having the same core feature — economic prosperity and a strong middle class.  The happiness index measures a country’s welfare across fourteen metrics: (1) business & economic, (2) citizen engagement, (3) communications & technology, (4) diversity (social issues), (5) education & families, (6) emotions (well-being), (7) environment & energy, (8) food & shelter, (9) government and politics, (10) law & order (safety), (11) health, (12) religion and ethics, (13) transportation, and (14) work.  All of these are driven by a strong economy.    The EPI, in turn, measures across ten metrics:  (1) air quality, (2) water & sanitation, (3) heavy metals, (4) biodiversity & habitat, (5) forests, (6) fisheries, (7) climate & energy, (8) air pollution, (9) water resources, and (10) agriculture.

Now quite obviously, both of these scales are related to economic success.  Poor countries are less likely to have good education, sustainable agriculture, adequate food and shelter, and work for everyone.  That said, there is a real chicken and the egg issue here.  Does a strong economy drive these factors, or is a strong economy (and I might mention, sustainable national security) driven by these?  For example, does the United States have good public education because we have a strong economy, or do we have a strong economy because we have good public education?

I would note that a lot of folks want to “make America great again” (not withstanding the fact that we’re already pretty great).  However, I would note that our best days — and the spark of great prosperity in our country — were times when we were focused on education, scientific research, preservation of our environment (anyone ever read about Teddy Roosevelt?) and securing, “…the blessings of liberty on ourselves and our posterity…”.

I’m glad to see that the U.S. ranks pretty high on both of these scales.  We should rank at the top. We used to.  We should treat education, scientific research, and environmental protection like national security issues, because indeed they are.

Written by johnkilpatrick

May 28, 2019 at 4:12 am

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