News

Landmark Links February 13th – Lame Disguise

Lead Story…. There are no shortage of places in the United States that could be considered different, eclectic, or just plain weird.  However, when it comes to having a bat-shit crazy populace, Berkeley is clearly in a class all it’s own.  Berkeley, of course is as really far to the left politically but one could write that about plenty of cities.  What makes Berkeley unique in this regard is that certain factions there that border on anarchism, making the place a magnet for all sorts of controversy.  There is a reason that anytime a right wing troll wants exposure for their “brand,” he or she schedules a speaking engagement at UC Berkeley, knowing full well that the ensuing riot will garner national press attention, spark a First Amendment debates on cable news and eventually result in more book sales, higher speaking fees or some other self-serving outcome.

Berkeley (both the city and university) has become even more of a cultural hot button since the last presidential election and most stories about California seceding from the rest of the US tend to originate there, or at least gravitate towards it.  That brings us to last week’s news that Berkeley has decided that they need their own cryptocurrency in order to gain financial independence from the Federal government.  From Melia Robinson on Business Insider (emphasis mine):

The City of Berkeley, one of the epicenters of liberal California, is considering a turn to cryptocurrency to reduce its reliance on federal funding in the Trump administration.

Berkeley would become the first city in the US to hold an initial coin offering (ICO) — a type of crowdfunding campaign that’s become popular in the past year. The city would raise funds by selling digital assets called “tokens” that are backed by municipal bonds, a type of security issued by the local government. Buyers might spend these tokens at shops and restaurants or even pay rent at apartment rentals that participate in Berkeley’s cryptocurrency ecosystem.

The goal is to raise funding for vital city projects like affordable housing and support services for the city’s growing homeless population. Someday, homeless people might receive tokens to buy goods and services from local businesses that accept the currency, according to city leaders.

It’s all talk for now, but according to Berkeley City Council Member Ben Bartlett, the creation of the city’s own financing mechanism is a key part of building resiliency in the Trump era.

“Berkeley is the center of the resistance, and for the resistance to work, it must have a coin,” Bartlett told Business Insider.

Bartlett has formed a committee with Berkeley Mayor Jesse Arreguín, financial technology startup Neighborly, and the UC Berkeley Blockchain Lab to hatch a strategy for the ICO. Neighborly’s cofounder and COO Kiran Jain said the city could launch its ICO, which it’s calling an “initial community offering,” by mid-May if the necessary approvals come through.

Wow!  What a revolutionary concept.  Sell a security (I know some of you may disagree but, especially in this case the currency is acting as a security, as you’ll see below) and use the proceeds to fund public work projects.  It’s amazing that no one has ever thought of this until now!  Oh, wait.  They have.  It’s called a municipal bond and it’s a capital raising tool that has been used by cities since at least the early 1800s  In fact, what Berkeley is proposing amounts to little more than putting bonds on the blockchain because, apparently there was some issue that no one is aware of with traditional municipal bond financing arrangements. It’s little more than packaging a municipal bond in a crypto wrapper.  Berkeley officials admit that this is what they are up to later on in the article.  More from Business Insider (emphasis mine):

Jain said the “initial community offering” will differ from traditional initial coin offerings.

In the same way the dollar was once backed by gold, a token from Berkeley will be backed by a security called a municipal bond.

When governments need money to finance projects that serve the public good, they raise funding by issuing municipal bonds. Cities, states, and counties use the money to build schools, highways, and affordable housing, and they pay back bondholders with interest over time.

The city of Berkeley is effectively leveraging the blockchain — the technology at the heart of bitcoin and other cryptocurrencies — to sell municipal bonds. Bonds don’t offer enticing returns compared to stocks and other investments, but the city hopes a tokenized version might appeal to residents who care about building affordable housing and helping the homeless.

“Unlike most of the ICOs which deliver coins for a future value or service, these coins will represent a real security issued for a specific purpose,” Jain said.

The exploratory committe behind the ICO will announce the full deal terms this spring.

In addition to the above, there are two other obvious problems with this approach:

  1. Berkeley has as strong of a NIMBY contingent as any place in the US and has shown little to no willingness to build affordable housing for years.  If you think that this will change because the funding mechanism is a municipal bond that is being called a cryptocurrency, then I have some oceanfront property in Las Vegas to sell you.
  2. Since this scheme is really just a municipal bond, the proceeds will have to be converted into dollars or at least have an established exchange rate in order to be used as a medium of exchange to pay for affordable housing.  As such, nothing being proposed here allows Berkeley any more independence from the Federal government when it comes to funding than simply issuing municipal bonds (like every other city in the US).

If I start calling one of my legs an arm, how many arms do I have?  The correct answer is two but if you think it’s three, perhaps you are a good candidate to buy some Berkeley crypto coin.  If Berkeley wants to issues bonds on the blockchain, that’s fine.  However, calling them something that they are not and then acting like they are somehow a revolutionary act of resistance against the Federal government is just lame.

Economy

Coming Next: Why wage growth (and interest rates) could be about to spikeSee Also: US Budget Director warns that interest rates may spike on widening deficit.

Correlation: Bonds are suddenly trading in a very high correlation to stocks and not providing the downside protection that they typically do during corrections.

Re-Alignment: Tax cuts could change the electoral map by spurring migration to blue cities in red states.

Commercial

Backlash: There is growing push-back against the insane giveaways that cities are offering Amazon for their 2nd headquarters.

Higher Ground: Malls that cater to rich people are doing just fine.

Residential

Winds of Change: California’s transit density bill would result in a radical statewide upzone that would change housing in the state for the better.

Funny Math Beverly Hills was one of only 13 California jurisdictions that met its affordable housing goals according a report from the Office of Housing and Community Development.  So how did one of the most expensive places to live on earth pull this off?  It turns out that the incredibly affluent city set their own housing element bar so low – only having to build 3 affordable units in the entire city – that it was impossible to miss.

Nowhere to Go But Up: From property banks to reclaimed land, distressed Detroit has become the ultimate incubator for housing policy.

Profiles

Swimming Naked: There is an old Warren Buffett saying that you find out who has been swimming naked when the tide goes out.  The tide has been receding on cryptocurrencies of late and it turns out that plenty of questionable participants have been swimming sans clothing.

Taken Out: How delivery apps are making life much more difficult for restaurants.

The Breakup: The capitalist case for breaking up Amazon, Apple, Facebook and Google.

Chart of the Day

A negative yield curve is an incredibly accurate predictor of recessions.  The good news is that it has started to widen again of late.

WTF

We’ve Got Spirit: Garbage discount airline Spirit finds itself in hot water after a rep  told a college student that she couldn’t bring her “comfort hamster” Pebbles on a flight.  When the student asked what she should do with the rodent, the Spirit rep (allegedly) told her to flush it down the toilet, which the student eventually did, leading to this gem of a quote:

“She was scared. I was scared. It was horrifying trying to put her in the toilet,” Aldecosea said. “I sat there for a good 10 minutes crying in the stall.”

Still not sure who the hell is comforted by a hamster.  Anyway, RIP Pebbles, and only fly Spirit if you are both cheap and a masochist.

Boys to Men: A young boy got stuck inside a claw vending machine because, Florida.  Remember, Florida Man was once Florida Boy.

Tastes Like Chicken: A poacher was mauled to death and eaten by the pride of lions he was hunting in a South African game reserve because karma is delicious sometimes. (h/t Steve Sims)

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

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