Economic Update (Monday, January 11, 2021)
Economic Update
(Monday, January 11, 2021)
We all have our New Year’s resolutions. Most likely your goal is to tackle that extra weight, run that extra mile, and/or buy another property. I believe all goals are great, but with the current pandemic, many of you feel limited in what you can achieve. Nonsense! While everyone is sheltering in place educate yourself. There has never been a better time for education. Get started now! Read every book, newspaper, magazine you can get your hands on, and study every virtual seminar you can access. Read everything. In fact, start now by reading this weekly Economic Update...
Employment. The U.S. lost jobs in December for the first time in eight months as the coronavirus bore down on our economy again and forced businesses to resort to more layoffs. The government and private sector shed 140,000 jobs last month, the Bureau of Labor Statistics said Friday. The decline in employment was the first since last April, when the U.S. lost a gargantuan 20.8 million jobs in that one month alone. Our economy is still missing some 10 million jobs that existed before the onset of the pandemic, with little prospect that they’ll be recovered any time soon, if ever. If there was a glimmer of goods news in the report, layoffs were concentrated at restaurants and other businesses that rely on large crowds of customers. The official unemployment rate, meanwhile, was unchanged at 6.7%. However, economists estimate true unemployment is several points higher because the official jobless rate doesn’t include over 4 million people who left the labor force last year. The news was not all bad: Employment rose in a number of major segments of our economy. For example, hiring rose by 161,000 in white-collar professional ranks and 121,000 at retail stores (though the increase in retail employment was likely exaggerated by holiday hires). Construction companies also added 51,000 jobs amid a boom in home sales while manufacturers added 38,000 workers to their payrolls. And employment increased by 47,000 among shippers and transportation companies who are delivering more packages than ever to homes and businesses. Yet momentum has clearly slowed. Economic growth and hiring are unlikely to speed back up again until vaccinations are more widespread and the pandemic peters out. Thus, unemployment is expected to remain high at least until the summer.
LA Job Growth Declines. Los Angeles County’s jobs report for December showed a continued bounce back from spring’s pandemic-induced lockdown, along with a dose of seasonal hiring. The county’s unemployment rate fell to 11% in December from a revised 12% in November, according to the state Employment Development Department. But that’s the end of the good news. That’s because the timing of the surveys — which were conducted during the second week of December — came just as coronavirus cases and hospitalizations surged to record levels. The impact from these restrictions and business closures will likely show up in the January figures. The December figures will probably more fully reflect the latest round of business closures following this latest surge and the government response to it. But here’s the real problem, the drop in the unemployment rate in November and December was not caused by more L.A. County residents finding work. Rather, it was the result of a shrinking labor force! EDD figures show the county’s labor force actually recorded a decline of 94,000 in December to 4.97 million residents. In other words, the lower jobless rate is because people are dropping out of the labor force! Three factors are behind the reduced labor force. First, people are leaving the workforce to care for sick relatives or children stuck at home (because most school campuses remain closed due to the pandemic). The other two factors are more typical during economic downturns: workers becoming discouraged and giving up looking for jobs. Finally, unemployed workers are using their downtime to return to school to learn new skills. Of greater importance is the longer-term trend in the labor force. The December figure is about 200,000 less than the level in February (before the spring lockdown hit). Or, to put it another way, the county’s labor force participation rate — the number of people actively taking part in the labor force as a percentage of the eligible working age population — was 61.7% in December, down from its most recent peak of 64.3% in February. Economists agree that, with the current surge in coronavirus cases and a renewed clampdown on restaurants and other retail businesses, the monthly job gains will be much smaller — and L.A. might even slip into job losses for the next couple months.
FEMA Says L.A. County Is the Riskiest Place in the U.S. Well, it’s official. When it comes to natural disasters, FEMA says we are the worst! But I bet you already knew that. The federal agency’s National Risk Index ranks more than 3,000 counties—and L.A. is on top. Surprise, surprise. An ever-lengthening wildfire season and the constant threat of “the Big One” can certainly make living in Los Angeles feel like a Darwinian struggle to survive, and the Federal Emergency Management Administration reports that mother nature is more likely to wreck your day in Los Angeles than in any other county in the country—and that’s not even taking our freeways into account! FEMA’s new National Risk Index tool ranked all U.S. counties on risk associated with 18 types of natural disasters, including wildfires, tornadoes, hurricanes, earthquakes, floods, volcanoes, and tsunamis, and L.A. came out on top. It may not be surprising that L.A., with all its elemental challenges, snagged first place honors, but Bronx and New York Counties came in second and third place, with Brooklyn (Kings County) taking the sixth spot. This is because the index—based on work by more than 80 experts over six years—focuses not only on places where natural events are most (or least) likely to occur, but also on which areas are likely to sustain the most damage. The Index also takes into account how vulnerable the population is, as well as the area’s ability to recover. By those calculations, big cities where there’s a lot of pricey real estate and a lot of people—and where a lot of those people are poor—are at the highest risk of suffering historic damage from once-in-a-lifetime catastrophes. Hence, LA is easily number one! Some of FEMA’s findings are easier to compute. For instance, stay away from Riverside County if you’re worried about wildfires, avoid Miami if you want to stay out of the path of hurricanes, and steer clear of Hawaii County if surviving a volcano isn’t on your bucket list. If you want to play it safe, however, the Risk Index says the top three places for you are Loudon County, Virginia; Chattahoochee County, Georgia; and Wrangell, Alaska. I’m already packing my bags.
County Extends Eviction Moratorium to End of February. Much to the chagrin of our landlord members, the L.A. County Board of Supervisors voted unanimously last Tuesday to extend the county's eviction moratorium through February 28. If you recall, the county first passed an eviction moratorium in March last year, which was later extended through the end of January 2021. In addition to extending the L.A. County moratorium by a month, effective immediately, Tuesday's motion also protects renters (who are facing eviction) because the supervisors denied a landlord's non-emergency request to enter their units. The motion also included some renter protections currently provided under state law, which would go into effect on February 1 (if the state's moratorium is not extended). Meanwhile, eviction defense lawyers say they've seen an uptick in illegal conduct by landlords, including lockouts and frivolous lawsuits. "The current protections that provide long repayment plans or push off eviction are really not doing enough to provide peace of mind to tenants or landlords about what's going to happen when that rent bill eventually comes due," said attorney Amy Tannenbaum with Public Counsel. Several public commenters called in to the supervisors’ meeting to voice support for cancelling rent and mortgages, referencing a proposal by a network of advocacy groups known as the Healthy LA Coalition. "We're sitting in the epicenter of a global pandemic and people all over L.A., both tenants and landlords, are facing the looming threat of eviction and foreclosure," said one commenter who identified herself as Lucia Pierre. The L.A. County update comes as California lawmakers consider extending the statewide eviction ban through the end of 2021, with Assembly Bill 16. Stay tuned!
You Just Lived Through One of the Most Stressful Years in Human History. Congratulations! According to 28 American and British historians surveyed by virtual therapy company Bloom, 2020 was one of the most stressful years in history. The historians ranked this year among the top ten most stressful both in U.S. and world history, just below years marred by tragedies such as the American Civil War, the Black Death, the Holocaust, and the sack of Rome. “2020 has been the perfect storm of stress,” Dr. Seth Gillihan, clinical psychologist and Head of Therapy for Bloom, said in a press release. “It’s brought disease, deaths, lockdowns, job losses and financial stress, plus culture wars and bitter political divisions. The only small consolation might be that we now have better tools than we used to for dealing with it.” They agreed that 1384—the peak of the Black Death—was the most stressful year in world history; and 1862—a grim year of the Civil War—ranked worst in U.S. history. The historians were also asked to select the one year “likely to have been the toughest, most difficult and stressful individual year for those who lived through it,” and two of the historians selected 2020. Below is the list, ranked in order of which years were chosen by the most historians:
1. 1862 – In what’s been called the darkest year of the American Civil War, 1862 culminated in the bloody Battle of Antietam.
2. 1929 – On Oct. 29, 1929, the Dow Jones Industrial Average plummeted 24.8 percent, marking the start of the Great Depression that stretched through much of the 1930s.
3. 1838 – Andrew Jackson’s Indian removal policy forced members of the Cherokee nation to surrender their lands and embark on a horrendous known as the “Trail of Tears.”
4. 1919 – The U.S. was still reeling from the trauma of World War I when the Spanish Flu outbreak killed 675,000 Americans. In L.A., the virus killed 494 out of every 100,000 residents, triggered a rush on drugs stores, and the closure of much of the city.
5. 1968 – Widely considered one of America’s most tumultuous years, 1968 was marked by the Tet Offensive in Vietnam, bloody clashes between police and demonstrators, and the assassinations of Dr. Martin Luther King at Memphis’ Lorraine Motel and Robert Kennedy at L.A.’s Ambassador Hotel.
6. 1962 – The Cuban Missile Crisis was the “hottest” moment of the Cold War, and perhaps the closest the world has come to nuclear holocaust.
7. 2001 – The 9/11 terrorist attacks shook the U.S. to its core. Need I say more.
8. 2020 – America recorded more COVID-19 deaths than any country, as unemployment skyrocketed, political and social divides widened, and the bitter Presidential election fanned the turmoil. L.A. saw the nation's largest number of small business closures due to COVID-19 and a winter surge in cases, forcing health care workers to start rationing care.
The World’s Largest Treehouse. I love treehouses. It’s one of those things I always wanted when I was a little boy but never got, that and a rocket ship. The thing that is strange to me about this treehouse (see photo below) is that I always thought the world’s largest treehouse would probably be in some exotic jungle, like the kind you only read about in National Geographic. But as it turns out it’s in Crossville, Tennessee. This treehouse is very real. In fact, thousands of people drive to see this treehouse every year. It is also featured in the Guinness World Record book, and it turns out there is quite a story behind it. This monstrosity-in-a-tree is 97 feet in the air. It has 10 floors and over 80 rooms. Horace Burgess, a minister, has been building this treehouse for over 14 years! He uses scrap wood that people give him from garages, storage sheds and barns. He says that God has never let him run out of material. There are literally dozens of stairways, porches, nooks, crannies and secret passageways. On the very top is a 5,700-pound chime tower complete with bells made from oxygen acetylene bottles, of course. You may be wondering what kind of tree could hold this house? An 80-foot tall oak tree with six other smaller trees close by are somehow able to support this sky high mansion. Heck, I bet I could live in a room in the corner of this treehouse and nobody would notice me.
Michael Jackson’s Neverland Ranch Sold. The infamous Neverland Ranch, in the Santa Ynez Valley, spans 2,700 acre and has a 12,000-square-foot French Normandy-style mansion, three guesthouses, a movie theater, a train station and a 4-acre lake with a waterfall. The Ranch has finally found a new owner in billionaire businessman Ron Burkle. Burkle views the ranch in Los Olivos, near Santa Barbara, as a land banking opportunity. The asking price of the property was originally $100 million in 2016 then dropped to $67 million a year later. The Wall Street Journal reports the Ranch was finally sold for a radically reduced price of $22 million to Burkle, co-founder of the investment firm Yucaipa Cos. In addition to the main residence (famous for Michael’s extra-curricular activities) and a 3,700-square-foot pool house, the Ranch has a separate building with a 50-seat movie theater and a dance studio. Other features on the Ranch are a “Disney-style” train station, a firehouse and a barn. Burkle’s spokesman said the billionaire had been eyeing Zaca Lake — which adjoins the property — for a new Soho House, a members-only club with locations in Los Angeles, Miami, New York and Toronto. Burkle ultimately decided the location was too remote and expensive for a Soho House, but wanted the Ranch anyway.
Kim Owns the Land and Kanye Owns the House? In the impending divorce between Kim Kardashian and Kanye West, buried between the news that Kim had retained celebrity divorce attorney Laura Wasser and the fact that Kanye only stayed at his wife’s million-dollar Tahiti birthday vacation for a mere day, was a juicy bit of real estate gossip. An unnamed source reports “Kim is trying to get Kanye to turn over the Calabasas house to her because that’s where the kids are based and growing up … She owns all the land and adjoining lots around the house but Kanye owns the actual house. They’ve both put a lot of money into renovating it.” She owns the land and lots, but Kanye owns the house? Did I read that correctly? Listen up investors, are Kim and Kanye ensnared in a good old-fashion land lease dispute? (As a reminder, a “land lease” is a property agreement in which one party owns the land on which a building sits and the other owns the building.) Post-divorce, if Kanye keeps the house, will he have to pay ground rent to Kim? Then again, it’s not uncommon for “high-net-worth individuals” to set up a trust to hold title to a property. A trust, as you know, is a legal agreement between a trustor and trustee, in which the trustee holds title to the property for the benefit of the trustor — and the trust is given a name other than the individual’s name (affording the owner added privacy). Purchasing in a trust name is how celebrities purchase homes — it’s so the general public can’t identify where they live. But while the fate of the house is un-determined, we can say with some certainty that it’s unlikely the next owner will be paying Kim Kardashian ground rent.
Why Is it So Hard to Design a Good Can Opener? Time for me to channel my inner Larry David. The can opener I have is probably the same one you have in your kitchen. It works ok, but there are still problems with it. When I’m opening a can, the contents usually overflow onto the top and gunk-up the blade. I can only open it partway so the lid doesn’t sink into the can. And I have to wedge the top up with a butter knife so I don’t accidentally cut myself (and bleed to death) on the jagged edge. While this is something I can endure, it’s far from ideal for someone who doesn’t have full dexterity with their hands or clear vision. Of course, there are other openers for sale — electric countertop versions, battery-operated ones that can fit into a drawer — but as reviews show, they all come with their own set of drawbacks: dropping cans onto the counter, using more battery power than expected, just not working, and impossible to fix yourself. I did a little research, and as it runs out, not much has changed in can openers for the past 20 or 30 years, and probably never will. Victor Papanek, a designer who advocates for ecologically and socially responsible design, already acknowledged the problems most of us have with can openers in his 1977 book "How Things Don't Work"; their propensity to rust, their dull cutting wheels, the ensuing mess, and the peril of getting fingers caught between the cutter and the drive wheel. His definition of the “ideal” can opener? A military-issue version that’s essentially just a blade with no moving parts, and looks more likely to slice off your finger before ever opening a can. While can openers are used less frequently than before, they’re still considered an “anchor” in your kitchen drawer. Then there’s the conundrum of any mass-produced product: the consumer. What makes a can opener work for one person and not another is pretty subjective. And therein lies the challenge with consumer goods: we’re all different, and products are made for the lowest common denominator (i.e. me!). Perhaps the solution to finicky can openers is the can itself. Cans were designed to safeguard the food, not to assist in opening the can. So why can’t can manufacturers simply design a can that is easy to open? I demand answers. If you’re a can manufacturer, please respond! I mean, after all, if you can make a better mouse trap, why can’ you make a better can opener? (He says as he mops up the blood.)
Weekly “Robbing Elbows” Podcast. LAREIC hosts the weekly podcasts, “Rubbing Elbows” staring our Director of Acquisitions, Chuck Dorfman, and his co-host, Lior Yehuda. Every Thursday live at 2:00 pm (and streaming anytime thereafter), Chuck and Lior interview real estate professionals sharing their insights and advice. Its real estate uncensored and unfiltered. These guys may be wild, but they know what they’re talking about. You can enjoy “Rubbing Elbows” wherever you view podcasts (i.e. YouTube, Facebook, Google, Apple) and LAREIC.com/RubbingElbows.
LAREIC’s January Virtual Meeting. Our first meeting of the new year will take place virtually this Thursday night, January 14, 2021, 7:30 to 9:30 pm. Our special guest will be Brian Lauchner, visiting us from Southlake, Texas. Brian is brilliant when it comes to using discounted promissory notes to create passive cash flow. The title of Brian’s presentation is “How to Create Multiple Streams of Passive Income Using Non-Performing Notes.” Don’t miss Brian’s presentation. To register, please RSVP at: https://www.accelevents.com/e/JanuaryMeeting. But hurry because we only have limited capacity on our Zoom broadcasts.
Quote of the Week: "The dumbest thing I ever bought was a 2020 planner."
This Week. Looking ahead, investors will continue monitoring surging Covid case counts and agonizingly slow vaccine distribution. The Consumer Price Index (CPI) will come out this Wednesday (1/13). CPI is a widely followed monthly inflation report that looks at price changes for goods and services. Retail Sales will be released on Friday (1/14). Since consumer spending accounts for two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth.
Weekly Changes:
10-year Treas: Rose 0.15 points
Dow Jones Avg: Rose 500 points
NASDAQ: Rose 250 points
Calendar:
Wednesday, 1/13: CPI
Thursday, 1/14: Import Price
Friday, 1/15: Retail Sales
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club, LLC
310-409-8310
