I had no idea that U.S. home building was such a fragmented industry that it actually is. There are 14 public companies, and the top 100 builders develop only a 1/3rd of the homes in the U.S. Post-hoc, one may not think of it is as a complete surprise that the industry is so fragmented given that real-estate is so local, but the extent of fragmentation is still shocking to me.
Continuing on the topic, I read that the marginal buyer in the housing market is not a home-buyer who’s looking to buy the place to live in, but is an institutional investor. Over the past year, Blackstone has spent $3B on buying 17k houses, and hired 1,000 people for these investments. What this means is that when then house prices rise enough, these investors will sell the houses to lock in gains, depressing prices again. So, while the recovery in housing continues, until these houses are handed back to the primary home-buyers, the market will remain inflated in a weird state of financialized mini-sugar-rush, somewhat akin to the QE3, which has provided liquidity and support for the economy as a whole, but has to be pulled back at some point.
I still remember this line from Michael Pollan’s Omnivore’s Dilemma about the food being more well-traveled than the typical American eater. I looked up that quote, and it read “the typical item of food on an American’s plate travels some fifteen hundred miles to get there, and is frequently better traveled and more worldly than its eater.” 1,500 miles is a lot. I was reminded of it because of this fact i learnt this week: a typical cod fish travels 10,000 miles after it’s dead to reach the dinner plate–a distance that it travels in its lifetime. Even to a person aware of the scale of the global trade, that is a somewhat absurd. Circumference of earth is 24,000 miles. That statistic by itself tells us a lot, depending on what you’ve read before: the upcoming fish stock collapse (also known as a “peak fish”), increasing meat intake by the global population, the cheap oil that allows for something of this relatively low value / volume characteristic to be traded globally, or why we need to eat meat at this scale at all, given how inefficient animals are in converting sunlight to stored energy in its muscles, when compared to plants.
Chinese shadow banking system quadrupled in size from 2008 to now to about $3.2T, or about 40% of the total economic output. Some of it is driven by what I think is euphemistically called WMPs (wealth management products), which offer higher yields and keep assets off the balance sheet. WMPs are 10% of the total deposits in the Chinese banking system, and have been used by the smaller banks to get more customers. There’s a lot here that’s very worrying, but the Chinese government has made a mockery of all those that have bet against them over the past few years, partly because credit flow is somewhat orchestrated. I am not knowledgeable or smart enough to figure out the end game, but I am very curious to see how it ends, because it has to end.
If the shipping industry (a fleet of 90k plus cargo ship) were a country by itself, it would be the world’s sixth largest CO2 emitter after China, the U.S., Russia, India and Japan.
Prasad Capital 