Landmark Links March 13th – Crazy Train


Lead Story…  It’s becoming increasingly obvious that the California “bullet train” is as big of a boondoggle as pretty much every sentient being thought it would be.  The state rail authority released it’s latest business plan last week and surprise, surprise the price tag just went way up and the completion date was pushed out (again).  From the LA Times (emphasis mine):

The California bullet train project took a sharp jump in price Friday when the state rail authority announced the cost of connecting Los Angeles to San Francisco would total $77.3 billion, an increase of $13 billion from estimates two years ago, and could potentially rise as high as $98.1 billion.

The rail authority also said that the earliest trains could operate on a partial system between San Jose and the farming town of Wasco would be 2029. 

If you aren’t familiar with Wasco, you are not alone.  It’s podunk town just to the north of Bakersfield that is best known for being home to a state prison.  Wasco is nowhere near Los Angeles and the prospects of bringing the bullet train through the mountains into LA will require 36 miles of deep tunneling which are virtually assured to come with additional billions of dollars of overruns, not to mention the challenges of actually connecting all the way through urban areas of San Francisco and Los Angeles.  In short, no one, and I mean NO ONE is going to drive 140 miles from LA to board a train to San Jose.  So how did we end up here?  Politicians sold their marks…I mean constituents a project based on phony assumptions back in 2008 and constituents took the bait.  More from the LA Times (emphasis mine):

The disclosure about the higher costs comes nearly a decade after voters approved a $9-billion bond to build a bullet train system. The original idea was that the federal government would pay about a third of what was then an estimated $33-billion project, with private investors covering another third.

But those assumptions proved faulty on numerous counts. In later business plans the projected price went to $43 billion, somewhere between $98 billion and $117 billion, down to $66 billion, and then $64 billion in 2016. And the funding sources dried up. The federal government only put in $3.5 billion and Republicans have vowed not to add another penny. Private investors have said they would not commit any investment to the project without a guarantee that they can’t lose money.

Being in the line of business that I’m in, one must accept the inevitability cost overruns. as they happen on nearly every single project.  However, I have to call into question the magnitude in this case.  Being off by 3x (depending on which estimate you believe) is a pretty spectacular failure and leads me to believe that the politicians knew that they were selling a bundle of crap with a bow on it but could only get initial funding approval  passed by giving the most optimistic projections – no matter how unrealistic they may be (quick side note: if you think that I’m being paranoid here, I invite you to listen to this recent podcast from Freakonomics which goes into great detail about politicians and project managers bullshitting costs and benefits of major infrastructure projects in order to gain approval).  So where do we go from here?  California taxpayers are probably going to be subjected to a lot of justification about having to continue to move forward to make good on the tremendous sunk costs and eventual environmental impact when the train is complete and if the rosy ridership projections ever come to fruition.  The problem is that there is now a funding gap of approximately $65 billion under the current best-case scenario (which absolutely no thinking person should believe) and no one knows where any of that money is going to come from.  In the meantime, if you want to see how large infrastructure projects should/can be done, check this out:

While California has been pulling teeth to finish the first phase of its train by 2029, China has relentlessly expanded its own bullet train network. In the same year that California voters approved its project, China fully opened its first high-speed rail line—75 miles (120 km) connecting major cities Beijing and Tianjin, with trains designed for a maximum speed of 217 mph (350 km per hour). California’s train would have a comparable cruising speed of 220 mph (354 km per hour). Now, a decade later, having already spent an estimated $360 billion (2.4 trillion yuan), China boasts 13,670 miles (22,000 km) of high-speed rail lines—greater than all other countries combined—and is in the process of laying down 9,321 miles (15,000 km) more by 2025.

So, China built almost fourteen thousand miles of high speed rail for $360 billion in less than 10 years and it’s going to take us 25 years and $77 billion to build a measly 381 miles of track (again, under the current best-case scenario).  Then we wonder why we can’t have nice things.

Where I take the most exception with this project is not so much the amount of money being spent – although it is egregious – but rather how it is being spent.  We live in a state that has some of the worst major city mass transit systems in the first world.  In addition to that, California is incredibly drought prone and has terrible and tremendously outdated water storage infrastructure.  Investing the money being spent on the boondoggle bullet train in either or both of those would likely pay for itself in economic growth while also being good for the environment.  One of the primary points that proponents of the bullet train have made was that it would reduce greenhouse gasses by taking cars off the road.  Ok, fine.  Buy you know what would take a lot more cars off the road?  Dramatic improvements to the mass transit infrastructure of our major cities.  Study after study shows that developing denser neighborhoods is good for the environment, yet it’s almost impossible to do without a robust mass transit system.  Imagine New York’s economy without the subway.  It wouldn’t exist, at least not in its current state.  Now imagine how much more productive California’s major cities would be if we spent the money currently being used for an absurd project like the bullet train and actually used it for much needed – if less flashy – projects like improving our neglected city mass transit and water infrastructure.


Moment of Truth: Jeff Gundlach sees sentiment shifting negative and a potentially combustible situation brewing with bond yields and inflation for 2019.

Uneven Boom: Non-farm employment gained a whopping 313k jobs in February, compared to the median estimate of 205,000 and the two prior months were revised higher.  However, average hourly wages increased just 2.6% from a year earlier missing expectations.  See Also: US household net worth rose more than $2 trillion in the 4th quarter with help from rising stock and home prices.

See No Evil: The market doesn’t believe what the Federal Reserve is saying when it comes to inflation.


Bold Vision? WeWork’s new WeLive apartment brand wants to disrupt city living with a focus on community.  But See: Why co-living is nothing more than Single Room Occupancy (SRO) with a hipper paint job and name.


Punch in the Gut: The new tax law has already proven to be a major hit to subsidized affordable housing as lowered corporate tax rates devalue the low income tax credit that nearly all subsidized projects rely upon to be financially feasible.  The result is that projects can’t get built because they are no longer financially feasible.

Jammed Up: Besides discouraging borrowers, rising mortgage rates could make current homeowners less likely to move, creating a bottleneck throughout the system while also greatly curtailing refinance activity.  See Also: Higher prices, tax changes and rising interest rates combined with low inventory could lead to a weak spring home sale season despite the booming economy.

Don’t Believe the Hype: Gavin Newsom and Antonio Villaraigosa are both front runners to be the next governor of California.  While both have announced incredibly ambitious housing goals, neither seems to have a strategy to actually achieve them.


Not As Intended: Once trumpeted as a way to get cars off of the road, studies are increasingly clear that ride sharing services like Uber and Lyft actually increase congestion in citiesBut See: How ride sharing services are changing Los Angeles for the better.

Underdog: The amazing story of how Steve Francis went from selling drugs on the corner to NBA super star in 4 years.

Prospectors: The Mountain West is experiencing a second gold rush.  Only this time, thanks to plentiful and and cheap power, they’re mining bitcoin rather than precious metals and neighbors aren’t happy about it.

Chart of the Day

The January wage growth pop was artificially inflated by the frigid weather conditions early in the month. That effect was reversed in February.


Don’t Do This: A drunk patient got so bored waiting for a psychological evaluation at a hospital that he stole an ambulance to drive himself home, because Florida.

Stop Me If You’ve Heard This One Before: A woman in a thong bikini and a midget enter a packed night club on a horse…….. because Florida.

Healthy Livin’: Meet Don Gorske, the 64 year old Wisconsin man who is about to eat his record 30,000th Big Mac because some people are apparently invincible.

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