Landmark Links June 14th – Contained

Must Read:  Regulators are alarmed by rapid growth in the $1.3 trillion leveraged lending market but don’t really know who holds the paper.  This passage in particular has echoes of the mid-aughts:

Signs of excessive risk-taking have emerged in any number of markets. But leveraged lending has raised eyebrows partly because of how lightly it’s regulated. Fueled in large part by demand from collateralized loan obligations that offer interest rates that approach 9% on some riskier portions of the debt, the market for leveraged loans has more than doubled since 2012.

Once again, the tail is wagging the dog and lenders are making loans, not based upon credit worthiness but rather because of the insatiable demand from CLO issuers.  Of course everyone who benefits financially is saying that the risks are “contained” this time around but their credibility is less than stellar.  I’m not saying that this will result in the next financial crash as the subprime corporate debt market is nowhere near the size of the housing market.  However, it has to at least raise an eyebrow that financial markets are going back to their old ways just 10 years after the crash.

Last time around, things got ugly because of over-leveraged households with sketchy credit.  This time its looking more like the problems will come from lending to businesses that are not credit worthy. Rinse.  Repeat.


Don’t Be So Sure: The market is pricing in a near certainty at this point that the Federal Reserve will be cutting rates in the near future.  However, a quick look at history shows that the bond market is almost always incorrect in predicting Federal Reserve rate decisions.

Sweet Spot: US demographics are great for household formation and will be until at least 2030.

All Clear? The Treasury market’s inflation outlook is tumbling.


Turnaround: How billionaires like Dan Gilbert of Quicken Loans are making massive investments in run-down cities and transforming American downtowns.

Shell Game: Any way that you look at it, this passage from a story by Reeves Wiedman in New York Magazine about WeWork is simply amazing and not in a good way:

On a practical level, SoftBank’s cash infusion helped WeWork cover the increasing costs of its whirlwind expansion as the real-estate market got more expensive. It also began spending heavily to fill all the desks it was adding. Just a few weeks after SoftBank’s investment, Shlomo Silber, the owner of Bond Collective, a New York–based co-working company, turned on his phone at the end of Rosh Hashanah to find dozens of his customers had forwarded an email from WeWork offering to buy them out of their leases and give them as much as a year of free rent. WeWork’s occupancy rate went up, but the deals made it difficult to determine the natural demand for its product. WeWork employees in multiple cities told me that savvy companies would take advantage of a few months of free rent in one WeWork, then wait for a new location to open so they could move and take advantage of another deal.


Purchase Optional: A new startup called ZeroDown is looking to institutionalize the lease-to-own option as as a way for prospective buyers to get into high price markets without a large down-payment.

Same Old Story: Housing bubbles have two defining characteristics that have endured through history, even before the advent of the mortgage:

  1. An increase in money supply targeting housing
  2. Price momentum where higher prices make people more motivated to buy than lower prices

Net Gain: JBREC took a close look at the results of the Tax Cuts and Jobs Act relating to housing.  They found that the majority of homeowners and renters benefited from it but that outcomes varied dramatically depending on location.


Shut Out: Chinese investors were once embraced in Silicon Valley both for their pocketbooks and their access to one of the world’s largest and trickiest markets. Today, they are suddenly less welcome thanks to rising China-US tensions.

Goals AF: Meet Bethany Gaskin, a 44 year old mother who has amassed a following over 1.8 million YouTube subscribers, 900,000 Instagram followers and who has grossed over $1MM by posting videos of herself eating shellfish online.  Once again, I find myself thinking that I am in the wrong line of work.

Taking Flight: More than a half-dozen companies have working prototypes of passenger drones that could be used as robotaxis.

Chart of the Day

Are we about to see another surge in refinance activity?

Source: The Basis Point


Pure Coincidence: A man who had cocaine on his nose when the vehicle he was traveling in was stopped by police told arresting officers that the drug was not his because Florida.

Comfort Animal?  An airport was on high alert after a massive brown bear wandered through security because Russia.

Subtle: A man wearing a two-toned blue shirt with red lettering on the front that said ‘COKE’ was arrested for selling crack cocaine because Florida. (h/t Steve Sims)

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