Ross Rant July 13, 2020
For a long time, I have been warning that the next financial crisis will possibly be government pensions. They are currently $4.9 Trillion underfunded due to unrealistic return projections by the funds, and a refusal of government entities to fully fund their obligations. It also is due to the stupid requirement that the bulk of pension money has to be in bonds, or similar securities to give surety of principal. So now they have surety of principal, no returns, and $4.9 trillion of unfunded liabilities, while the stock market would have gone a long way the past three years to earn a big part of the missing funding. Now we also have the issue that nobody knows what real estate values are. Pension funds invested in big assets like malls and large urban office buildings. Not only is there now an issue of unpaid rents, but likely growing vacancy that may not get leased up for who knows how long. Especially in major urban areas. What we know is all those huge assets are worth a lot less now than they were when acquired, and when interest rates do rise in a few years, they may be worth even less as the Fed withdraws its policies of zero rates. Big undeclared losses to come. Lastly, with the bulk of jurisdictions being under water on budgets, there will be no money to fund this year’s obligations, adding to severe under funding of pensions again. In short, the pension problem is going to explode one day, and it is getting far worse right now with no prospect of any fix. There is no possible way to cover the $4.9 trillion shortfall. I am waiting for any urban them politician to tell the teachers their pension plans are being revised down. I have no idea when the real crisis will hit, but you can count on it happening, and when it does there will be no bailout if Republicans control the Senate. That is the real issue that is now on the table between Pelosi and McConnell in funding state and local governments. It is really/ mainly about the pension liabilities and Pelosi protecting her union base.
How do you determine the value of any real estate project now. Warehouses with long term single tenant leases can be valued, possibly, but not a lot else. You have no idea when past due rents will be paid, if ever, and no idea when evictions will again be allowed in urban markets. Retail stores are closing by the thousand. In addition, you have no way to project how many major office tenants will move permanently to having partial virtual workers, and therefore reducing space needs, or are moving some operations out of central city locations to the suburbs. Zoom has changed a lot of how things get done. For example, I just redid my will and the entire work including notarized signing was done via Zoom with the notary seeing my license and watching me sign. Everyone involved was working from their home. Now there is also virtual signatures for legal docs. I attend twice-a-week staff meetings on Zoom for our development team on the 90 acre warehouse project I am a partner in. Everyone is working from home, and the project moves ahead very efficiently. Some senior managers do go to the site when needed, but with on-site cameras, instant communication of data, and foremen and subs on site who provide instant feedback, it is not as crucial for as many visits as before, and not as crucial for senior managers to be in the office every day. I had two doctor appointments over the past ten days -both via tele-med and was able to be diagnosed in that way for a minor issue with a prescription then issued electronically by the doc. Point being, we are adapting quickly to virtual everything. There is even now an ad for an EKG device you use at home and can send the read out to the doc. I have no idea if it really is a valid heart read, but you see where this is going very quickly. Wal Mart is now ramping up to compete with Amazon, and a clothing company now advertises that you can be measured with your smartphone while at home, and they make the clothes to fit. All this makes it further unnecessary to go to a store. The need for more leased space, or even as much space, is going away quickly. Nobody knows what the real situation will be in a year when the virus goes away. How many major hotels will still be operating? Do you want to own a conference hotel in Phoenix, NY, Dallas, or LA now? With webinars and small Zoom conferences by the dozens, do people need to go to as many conferences. Maybe networking will be by Zoom, or some other similar site. Maybe younger people are so used to meeting and socializing by smartphone app that conferences will eventually not be so important as they were to us older guys. If you can find dates or go online to find someone to have sex with like on swinger sites, why not networking for deals or financing. There will be a way to do this possibly soon by someone. People have been buying and renting homes virtually during the virus. You can now buy a car online and get it delivered. The virus has permanently changed how we communicate and do business in various fields, and where we need to be to work. Face to face is not going away, but it will be more limited as technology makes it so easy and cost efficient to do things virtually. Nobody knows where interest rates might be in 5 years. Analyzing real estate values is going to undergo a major change now. The simplistic methods of appraisers based on absurd ten-year assumptions of interest rates, which were rarely accurate anyway, will have to be materially changed.
If you want to know what is happening with FL real estate vs NYC, my neighbor on Longboat put his house up for sale and in ten days has over 2,000 hits on Zillow, and several showings already. It is a nice, but nothing special house at ground level on a flood vulnerable island. (My house is up on ten-foot concrete stilts and grade is several feet above mean high water). My neighbor already raised the ask price 3% after one week on market and is still underpricing the house given the level of interest. He is selling with no broker. I doubt I can find any buyer for my NYC co-op at the moment.
Oil demand is returning, and OPEC may relax its cutbacks. $40 is not enough for the US oil patch to generate real cash flow. It remains a struggle for them. There are a lot of high paying jobs in the oil patch so hopefully oil prices go back to $45-50 soon. At that level oil producers can have some positive cash flow to help cover their excessive debt. They have a long way to go before the oil patch recovers sufficiently. There will need to be a lot of cost cuts and pay down of debt before they are going to be drilling any more wells.
The fishing industry has been creamed. It simply does not pay to go out each day. With restaurants closed, or barely operating, and with exports to Asia and EU largely shut down, fish prices to fisherman are so low it is better to stay home. Unclear how much longer this will last, but at least the fish are rejuvenating due to little fishing.
This week the EU will decide if it will consolidate debt issuance and raise $850 billion to bail out the southern failing nations. Hard to know what will happen, but this is a key moment for the EU. . Germany has become very dependent on China which is now its top trade partner by far. The US is third. Merkel is pushing ahead with the Russia gas pipeline which will make Germany subject to Russian political influence. The US Germany alliance is coming apart, and it is not just Trump that is the cause. Merkel may be the one whose actions triggers the coming apart of the EU as a bloc. Germany has not been a solid partner on some big issues for several years. Selling to China has taken priority. Poland, Hungary and others are not going along with her on several key issues. The UK is gone. How they handle the $850 billion bailout will be critical. The EU is becoming less relevant to world geopolitics and economics as the shift to China-US becomes the dominant relationship and contest for superiority for the next decade or more.
Facts continue to be hard to come by with Covid. The mainstream media seem intent to scare the crap out of everyone. Fact has little place in many of these reports. Yes, there are big surges in cases and hospitalizations, but the death rate continues flat. It appears much of it is from people not adhering to guidelines, the protests, a lot are from people crossing from Mexico, and mostly young people who are not taking precautions. Florida has a lot of old people who have other conditions, so with things opening there will be more deaths, but it is unclear the rate per tests or per cases has increased. If old people do not adhere to guidelines they are at risk. A substantial number of the cases in AZ and TX and southern CA are from Mexicans crossing to visit relatives. Fact- little kids do not seem to get Covid, and do not appear to transmit it. They need to be back in school. The teacher’s union, however, is trying to use the virus to get rid of charter schools and to get more money for themselves. In LA they are demanding to defund police and give the funds to schools. The kids are the ones who get damaged, as usual, by the union. Like the shutdown, the collateral damage of no school is far worse than the risk of being in school. 20+ countries have kids in school and NO problems. In Sweden they never closed schools, and no issues with kids. Many try to claim Sweden made a mistake not shutting down. Sweden now has almost no new cases. 90% of the deaths were over 70 years old, and with comorbidity, and Sweden says they made a mistake early on by not better protecting the vulnerable and older people which caused the high death rate at first. Also there seems to be little surge at all in NYC from the protests. There were no old people in the protests. I have been told around 1/3 or so of people on the street in Manhattan do not wear masks. No new surge. Cases way down. Maybe Sweden and NYC have achieved community immunity. Nobody seems to know yet. Why does Vancouver and Taiwan, and some other places have relatively few deaths. Houston and southern border counties in TX have surges, but some counties have no surge at all. The media only tell you TX is in crisis, but that is not true of all parts of the state. Some parts of FL have a big problem, especially Miami where there were big protests, but places like Longboat Key have no new cases in 4 months, yet there are now lots of tourists coming from other parts of FL. Bottom line, it is very unclear what reality is other than the media are again stirring the pot to make it fearsome and spread national concern when that may not be true. It is very possible it is more media politics to make Trump look bad. We just do not have detailed facts and data from which to know. What is clear is that the surges have dampened economic activity in these key states and have caused many others to be cautious. Capex by corporations will remain slow until the surges are past. Vaccines will help, but they are not the magic thing everyone says they are. They will not be 100% taken nor effective.
Floyd’s brother got a folded flag like they give to the families of fallen military heroes. Pelosi presented it. Where was she when the black cop got murdered in Oakland? Where was she when the two young blacks got murdered in CHOP in Seattle? Did she ever show up at Dover when bodies of fallen heroes are brought back? Has she ever presented the folded flag to the family of a fallen soldier or cop who was killed by a black felon? No. Crickets. She and other Dems kneeled in the capital for eight minutes for Floyd. Did she ever even bow her head for fallen soldiers or cops. She is disgusting. Where is Joe and Pelosi talking about who is going to show up when your home is being invaded---a social worker? Two cops just showed up to a domestic disturbance that the left says will be handled by social workers. The cops were shot and killed as they approached the door. Who shows up when the social workers are shot in a similar situation? Not the cops in Seattle or Minneapolis. Which them is dealing with the mass murder of young black men in Chicago, and now NYC? Do you hear Joe or Pelosi mention it at all? Portland is out of control now. If the Feds had not sent forces, the federal courthouse would have been burned down this week. What is Seattle’s answer to rising crime and chaos?---raise employment taxes and cut police budgets. And they expect companies to remain there. They are insane. DeBozzo says protests are allowed, but no other groups can congregate. He is just an idiot. He is out painting BLM on Fifth Ave and encouraging more protests, but the NYPD is seeing a record number of retirements due to him. There are so many the department cannot process them all. Every past NYPD commissioner, plus the present one, has predicted NY is now in for a disaster of crime, so DeBozzo disbands the undercover anti-crime task forces who have been so successful, and cancels the next rookie class, then cuts out 16% of the police budget. The bartender from the Bronx says it is OK to shoplift because you need to feed your family and the police budget needs to be reduced a lot more. You cannot make this stuff up. Stupid does not come close to defining her and DeBozzo. The exodus from NYC is accelerating. Rents in Manhattan are going down, but right across the river in NJ they are rising. That is the only data you need to know to understand what is happening in NYC under far-left them control. Soon the shootings will match Chicago after NYC had been the safest large city in the US for many years until DeBozzo.
Trump has said he will consider defunding universities that stop free speech. He was attacked for that, and they claimed he cannot do that. They forget, there is the Solomon Amendment 10USC 983. It, defunded colleges that kicked ROTC off campus. There is precedent. The shutdown of free speech is now out of control and will be even worse when school reconvenes. Just take the Goya situation, or what goes on at Google. The mob attacks with no understanding of what they are doing. They want to attack a Latino owned company that is very charitable and employs several thousand Latinos who would lose their jobs, and food banks would lose their free donations from Goya. Everyone should go buy Goya products now. I believe the Goya situation may be a turning point. It will really piss off Latinos if this boycott effort moves forward. Maybe lots of those suburban women will realize this is nuts and defund the police will leave them vulnerable. As cities spiral out of control, women who hate Trump may start to rethink who will protect them if the Dems get control and go after the police.
Stone may be guilty. I assume he is. Do you recall Marc Rich and Clinton’s brother? Or Obama commuting 1,715 criminals, and most just because they were black. Then there was Obama commuting Chelsea Manning---traitor, and then there was Bergdahl-deserter traded for five top terrorists. The press forgets these things. Of course, right on cue Nadler is ready to have a new investigation, and Pelosi wants to change the constitution to stop pardons and commutation by Trump.
The harassment of the homeowner in St Louis who was protecting himself and his home is outrageous. If he had not got his guns he might have been killed or his house wrecked. The black DA just wants points but is acting as a surrogate for the BLM protestors. A man has a right to protect himself and his wife and home when threatened. He shot nobody. He just made it clear he was not going to allow himself to be attacked. If we can’t do that then there is no law left in America.