Fighting the last war are we?

Bret Stephens's recent piece about the "fighting the last war" effect being played out as the American military continue to navigate a path that had made it wildly successful in the past while insurgent powers chart an asymmetric, potentially disruptive, course.  His recounting of Agincourt clearly indicates that it's happened before.  And it will keep happening if the continued evolution of ISIS after being shorn of its territorial holdings is any indication.

This brings up the state of play in my own backyard, residential housing, where incumbent mortgage companies are scratching their heads about the disruptive potential of the iBuyer segment.  Their infinitesimal 0.2% share of total 2018 home transactions belie substantial scale gains in select geographies.  As highlighted in a recent report, the segment accounted for nearly 6% of the Phoenix market in Feb 2019.  Just as importantly, well funded and generously valued, the iBuyer presence will increasingly be felt broadly as they re-shape  expectations around the velocity and level of certainty in home sales and purchases.

Moreover, to remedy the low margins of the core transaction, iBuyers have been rapidly expanding the basket of constituent services, most recently discussed in a panel with folks from Knock, Opendoor and Offerpad at LendIt Fintech orchestrated by my friend Geoff Green of Salesforce.  Not all of these ideas will work, but these actions will further strain the traditional retail real estate models, starting with the realtors.  In the face of the billions raised and being deployed by these insurgents, the nearly $73 million spent by the National Association of Realtor in 2018 to further the status quo, second only to the US Chamber of Commerce, no longer seems so daunting.

The impact, however, expands beyond realtors.  By stirring the realtor pot, these insurgents are messing with what's traditionally the main purchase lead source for retail-centric mortgage companies.  As the realtors' role is usurped, their ability to drive transactions to mortgage loan officers will be impeded.

The question will be how to respond...

Are we using the wrong paradigm to frame our healthcare debate?

My friend Gregg Schoenberg recently commented on the enthusiastic response at the Fox News / Bernie Sanders town hall in Bethlehem, PA to Sanders' Medicare For All proposal.

I wonder if we're using the wrong paradigm to frame our domestic #healthcare debate. Instead of "left vs. right" and "freedom of choice," underpinned by the increasingly ridiculous reliance on our capacity to make rationale, cost-effective decisions at the point of sale, maybe we should think about healthcare as part of a societal services layer.

To analogize, we can all develop in machine language, but, as the Commodore 64 has long given way to cloud services, having the freedom to twiddle one's bits is frankly counter-productive. In that same vein, increasing levels of abstraction - our societal services layer - have freed us to be more productive, absolving the lot of us from having to worry about the nitty-gritty of natural disasters, homeland security, clean drinking water, etc.

"Americans have spent the last decade arguing loudly about whether and how to provide insurance to a relatively small percentage of people who don’t have it. Singapore is way past that. It’s perfecting how to deliver care to people, focusing on quality, efficiency and cost."

As a reasonable capitalist, I'm no fan of unwarranted government overreach, but if the "socialist paradises" of Singapore and Taiwan can create workable healthcare services layers within the context of the free market, I'm optimistic in our ability to achieve similar outcomes... if we put our minds to it.

Can home equity loans help another group feeling the pinch?

Imagine the shock reading about yet another group being left behind, this time, those in the upper half of the the wealth pyramid below the top 10 percent?  As is my predilection, familiar to my devoted reader, I immediately focused on the impact of housing.

Source: Bloomberg Business

The above chart shows that, even after a decade of de-levering and then re-levering with the tailwind of an extended run-up of home prices, the share of housing debt as a portion of total indebtedness has dropped substantially.  The author then serves up a chart on rising debt service costs to back up his contention about households shifting to higher interest rate debt categories.

Can Home Equity Loans Help? 

Source: Black Knight February 2019 Mortgage Monitor

Abundantly clear from the above chart is that consumers are currently sitting on nearly 2.2x more tappable equity than at the end of the recession, despite multiple first mortgage refinance waves that have soaked up significant excess home equity.

Moreover, both HELOC balances and limits have come down in during the period in question while credit card balances and limits have risen.

Finally, when debt share by product is compared between two age cohorts (30-49 vs. 50-69), one notices a material difference in HELOC adoption.  One also sees that there could be economic value in substituting HELOCs for higher cost credit card debt in both cohorts.

Any Conclusions?

No slam dunks here, but there's evidence that, beneath the headlines around tappable home equity, there's clear indication of changing consumer behaviors, and not necessarily for the better.  There's also an opportunity for consumers to save substantially by moving from higher cost credit card debt to some form of secured home equity loans.

Into the breach... Corporate moves in the face of government inactivity

Given nature's general distaste for vacuums, should you be surprised by private sector machinations in the face of government inactivity, if not active counter-programming, on the matter of climate change?  Moreover, is it shocking that these moves by Big Business, as documented in this past Sunday's New York Time Magazine, have not gone in "the way you might hope?"

Expectations of corporate enlightenment, or at least enlightened greenwashing, on the magnitude of Goldman Sachs' collaboration with the Wildlife Conservation Society (WCS) in the establishment of the Karukinka nature reserve in Tierra del Fuego are unrealistic with the private sector's mandate of maximizing value to constituents and not addressing the Tragedy of the Commons conundrum.

At the same time, the metastasizing vacuum that is our present-day government has given rise to corporate initiatives that, in prior days, would have been hallmarks of progressivism.  These efforts range from regional affordable housing to corporate diversity. While none can fully escape the taint of "greenwashing," they are cause for optimism in the beneficial alignment of corporate self-interest with the objectives of constituents, who may not be so enamored with making something great again as they are with seeking to achieve a higher plateau up ahead.