Economic Outlook: From Automotive to AI with Wolf Richter
The Impact of Financialization on the Modern Economy with Wolf Richter
Commercial Real Estate and Manufacturing Trends with Wolf Richter
Exploring the Impact of Financialization and AI in Real Estate with Wolf Richter
In this episode of the Construction Disruption podcast, Todd Miller and co-host Ethan Young sit down with Wolf Richter, founder of WolfStreet.com, to discuss a variety of pressing economic topics. Richter shares his insights on the structural challenges in commercial real estate, the potential impacts of AI on various industries, and some significant trends in manufacturing and housing markets.
With a fascinating personal journey that includes a three-year travel experience, Richter offers a unique perspective on business, finance, and real estate. Whether you're in construction, finance, or simply interested in modern economic dynamics, this episode is packed with valuable information and thought-provoking discussions.
Timestamps
00:38 Introducing Today's Guest: Wolf Richter
01:08 Wolf Richter's Journey and Career
06:45 Commercial Real Estate Post-Pandemic
13:14 Impact of AI on Commercial Real Estate
16:09 Manufacturing Infrastructure Boom
24:01 Supply Chain Reflections
26:43 Current State of the Housing Market
30:03 Market Dynamics and Housing Prices
30:37 Regional Housing Market Trends
31:56 Impact of Mortgage Rates and Supply
33:26 Small Business Survival Post-COVID
34:53 American Entrepreneurial Spirit
38:02 Reading Habits and Information Sources
40:19 Life in San Francisco
43:21 Financialization and Economic Risks
47:58 Rapid Fire Questions
53:48 Closing Remarks and Final Thoughts
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Website: https://wolfstreet.com/
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This episode was produced by Isaiah Industries, Inc.
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I'm Todd Miller of Isaiah Industries, manufacturer
Todd Miller:of specialty metal roofing and other building materials.
Todd Miller:Today, my co host is Ethan Young.
Todd Miller:Mr.
Todd Miller:Young, how are you doing?
Ethan Young:I am doing good, Mr.
Ethan Young:Miller.
Ethan Young:How about you?
Todd Miller:Doing well also.
Todd Miller:Thank you.
Todd Miller:I'm looking forward to today's show.
Todd Miller:And, just so our audience knows, once again, we are doing challenge words.
Todd Miller:So, both Ethan and I and our guests have a mystery word.
Todd Miller:And we have been challenged.
Todd Miller:But one of the others to work into the conversation.
Todd Miller:So you, the audience can try to figure out what our mystery words are.
Todd Miller:And at the end of the show, we will tell you whether we were
Todd Miller:successful using them or not.
Todd Miller:So, let's go ahead and dive right in.
Todd Miller:I actually am really excited about today's guest.
Todd Miller:this is something a little bit unusual for us, a repeat guest.
Todd Miller:We have not had too many of those.
Todd Miller:in the past, and, he's actually a repeat guest from our most listened to episode.
Todd Miller:So that's really exciting.
Todd Miller:Our guest today is Wolf Richter, author and founder of the very popular
Todd Miller:Wolf Street website as well as a prolific writer and video creator.
Todd Miller:Wolf tells the stories behind business, finance, and money.
Todd Miller:Born in Germany, Wolf found himself moved to Oklahoma when he
Todd Miller:was 17 years old and he ended up sticking around here in the States.
Todd Miller:Uh, Wolf now lives in San Francisco.
Todd Miller:With degrees from Midwestern State and Tulsa University, Wolf spent
Todd Miller:a decade managing a large Ford dealership and its subsidiaries, giving
Todd Miller:them a bit of a heart, as well as knowledge for the automotive industry.
Todd Miller:But one day, nearly 30 years ago, he quit his job, went to France for seven
Todd Miller:weeks, and then went on a life altering three year journey that took him across
Todd Miller:a hundred countries on all continents.
Todd Miller:In 2011, then, he started Testosterone Pit, In 2014, he changed the name to
Todd Miller:Wolf Street, where he writes daily for the most part on many different
Todd Miller:topics, often related to business, economics, finance, and real estate,
Todd Miller:as well as automotive industry.
Todd Miller:Um, always interesting and informative.
Todd Miller:Wolf has a great following due to his keen insight.
Todd Miller:And.
Todd Miller:What I like about him is his ability to make sense and draw conclusions,
Todd Miller:about some pretty complex issues.
Todd Miller:Wolf, welcome back to Construction Disruption.
Todd Miller:Pleasure to have you here today.
Wolf Richter:Thanks for having me back, Todd.
Todd Miller:Well, that was kind of a long introduction
Todd Miller:too, but it was well deserved.
Todd Miller:we're glad to have you here today.
Todd Miller:So when you were on the show before, I don't think We
Todd Miller:talked a whole lot about you.
Todd Miller:We kind of dove right into a lot of topics, but I'm kind of curious
Todd Miller:to kind of open us up today.
Todd Miller:Can you share with us?
Todd Miller:you know, what was your state of mind when you left the car dealership,
Todd Miller:went to France supposedly for seven weeks and then started a three
Todd Miller:year journey around the world?
Todd Miller:You know, what were you looking for?
Todd Miller:What was your state of mind at the time?
Wolf Richter:Well, there were a couple of things that came together.
Wolf Richter:One, a good friend of mine died of brain cancer at a very
Wolf Richter:early age, relatively speaking.
Wolf Richter:It seems a very young age now.
Wolf Richter:And I wasn't even 40 then.
Wolf Richter:And I thought, you know, what if I don't make it to 40, you know,
Wolf Richter:what if I don't make it to 50?
Wolf Richter:and so that started, a process, where I started questioning what I was doing.
Wolf Richter:and then I was ultimately frustrated with a franchise dealer business.
Wolf Richter:I was frustrated with a Ford motor company.
Wolf Richter:They have never had management that can manage itself out of a paper bag.
Wolf Richter:And, it is just incredible the stuff they decide.
Wolf Richter:And I didn't want to spend the rest of my life doing that, and
Wolf Richter:I didn't know what else to do.
Wolf Richter:So, what does a young man almost 40 do?
Wolf Richter:You know, he just takes off and goes to France.
Wolf Richter:And, there I met, I, a Japanese woman who was talking to me about Japan and
Wolf Richter:it raised my curiosity about Japan.
Wolf Richter:I never even thought about it much.
Wolf Richter:And, so, this, Japanese woman is now my wife.
Wolf Richter:And, it triggered this whole thing where I wanted to go.
Wolf Richter:look around the world a little bit, and especially visit her in Japan, and I
Wolf Richter:did that, and I wrote a book about that Japan part, Big Like, and it's, it, the
Wolf Richter:book is not a happy ending, and, it, Japan turned out to be a very difficult,
Wolf Richter:but super fascinating country for me.
Wolf Richter:And after Japan, I didn't want to go home.
Wolf Richter:So that was that, you know, I went from Japan to Vietnam and
Wolf Richter:then from there overland to China.
Wolf Richter:And I just worked my way across Asia and Mongolia, Russia, and then up hitchhiking
Wolf Richter:through the Scandinavia back down south.
Wolf Richter:and, you know, that, that's just, It took a long time, and then I went
Wolf Richter:from Spain to Africa and spent six months in Africa and, overland mostly.
Wolf Richter:So, it just went from one thing to another, and in the end, I
Wolf Richter:spent three years traveling, and that was never planned.
Wolf Richter:It was, just one step at a time kind of thing, and at some
Wolf Richter:point, I decided, I was done.
Wolf Richter:I needed to go home.
Wolf Richter:And home at that point was Oklahoma.
Wolf Richter:and so I had a condo there and I went home and then I constructed a new life for me.
Todd Miller:Wow.
Todd Miller:I mean, that's quite the story.
Todd Miller:I mean, I guess I'm curious.
Todd Miller:obviously, you know, as you're going traveling around and you're learning
Todd Miller:a lot, seeing a lot of different cultures, when you came back to
Todd Miller:the States, you didn't make the decision to go right back into the
Todd Miller:automotive industry or business again.
Todd Miller:I mean, were there any key things that you kind of developed during that time
Todd Miller:traveling that ended up really altering the rest of the course of your life?
Wolf Richter:Well, one thing I did was, I really improved my French
Wolf Richter:because I spent, probably about a year in, French speaking countries, or in
Wolf Richter:France mostly, but also in Africa.
Wolf Richter:And, I worked hard on it, so I, I became, you know, fluent in French, and I studied
Wolf Richter:French before as an adult, and then gone to France, taking language courses in
Wolf Richter:France, but so this was really different now, I was at a different level, and
Wolf Richter:I wanted To really do something more internationally and I ended up doing
Wolf Richter:that, you know, I ended up, running a VC funded startup company in Belgium.
Wolf Richter:and then, worked a little on Wall Street and did different things
Wolf Richter:and it just, I never wanted to go back to the car business itself.
Wolf Richter:I followed it and I have a passion for it and I get really pissed off when
Wolf Richter:the automakers do stupid stuff but I don't want to work in it anymore.
Todd Miller:Yeah, gotcha.
Todd Miller:Well, very interesting.
Todd Miller:And yeah, I mean, that's just that, amalgamation, all those experiences
Todd Miller:is kind of what makes, I think your commentary and, what you
Todd Miller:write so incredibly interesting.
Todd Miller:Well, I want to go ahead and start digging into one of your favorite
Todd Miller:topics because I think it is of strong interest to our audience as well.
Todd Miller:and that's commercial real estate.
Todd Miller:here coming in our I guess I can call it post pandemic world.
Todd Miller:Is there still a glut of office space out there?
Todd Miller:and do you see that getting any better or worse or what's going on?
Wolf Richter:Yeah, I mean, office is probably among the worst
Wolf Richter:sectors in commercial real estate.
Wolf Richter:they're all having problems now because of the higher interest rates.
Wolf Richter:But the office sector has, on top of that, has a structural problem
Wolf Richter:in that before the pandemic, the major companies, you know, perceived
Wolf Richter:there to be an office shortage.
Wolf Richter:And so every time office space came on the market, they jumped on it
Wolf Richter:to grow into it and for future use.
Wolf Richter:And I mean Facebook.
Wolf Richter:at least a whole building in the tower, you know, in San
Wolf Richter:Francisco, and it's kind of stuff.
Wolf Richter:And, they didn't need it.
Wolf Richter:And, they didn't need it then.
Wolf Richter:and then we had the pandemic and we had working from home and that with all
Wolf Richter:these executives sitting around the house and nothing to do and making decisions
Wolf Richter:from a distance, they realized, wait a minute, we don't need all this space.
Wolf Richter:We've got people working at home.
Wolf Richter:We've always had some people working at home, you know, so
Wolf Richter:now we've got more of that.
Wolf Richter:we're never going to grow into this office space and they started massively putting
Wolf Richter:this stuff back on the sublease market and they pulled back from the, from the direct
Wolf Richter:leasing market and, companies that owned their own buildings put them up for sale.
Wolf Richter:And, so now we have this huge amount of vacant office space,
Wolf Richter:sitting on the market for lease.
Wolf Richter:in some cities in quite a few cities, it's around 30 percent of the total
Wolf Richter:inventory is on the market fully.
Wolf Richter:So that includes San Francisco, includes Dallas, includes Houston,
Wolf Richter:includes a whole bunch of other cities in some of the smaller office.
Wolf Richter:cities like St.
Wolf Richter:Louis and Tulsa.
Wolf Richter:it's like a depression there in terms of the office sector and, so, there really
Wolf Richter:isn't a good solution to that, that, you know, I mean, interest rates can go down.
Wolf Richter:It's not going to change the structural issues of the office sector and, So
Wolf Richter:the industry is grappling with this, and in San Francisco, well, if you
Wolf Richter:know, we, I follow this a little more closely and, for a while, there
Wolf Richter:weren't any sales of office buildings.
Wolf Richter:Now, we've had a few, they were at discounts of 65, 70 percent of the
Wolf Richter:prices that they, were at before the pandemic, a lot of buildings are
Wolf Richter:essentially being sold for land value.
Wolf Richter:with the intent of either tearing them down or spending a huge amount of
Wolf Richter:money converting them into residential and, ultimately this will be good.
Wolf Richter:I would love to see, downtown's financial districts, et
Wolf Richter:cetera, become much more mixed.
Wolf Richter:So more residential involved along with office.
Wolf Richter:I think that would be a great thing because now these business districts at
Wolf Richter:night, they're dead, there's nobody there.
Wolf Richter:And it's really good to have a mixed environment where people live and
Wolf Richter:where they work and where they play.
Wolf Richter:And in San Francisco, the financial district is right next to the waterfront.
Wolf Richter:It's beautiful.
Wolf Richter:And, there's some people, there's some towers around it, but not a
Wolf Richter:lot, you know, that would really benefit from, from mixed use.
Wolf Richter:In Manhattan, that's already the case.
Wolf Richter:They've already converted over the decades, a whole bunch of older office
Wolf Richter:buildings into residential, including when I was living there, there's some of
Wolf Richter:them that came on the market that had been office buildings and they did a pretty
Wolf Richter:good job, so that's, that can be done, especially with older buildings and, I'm
Wolf Richter:really looking forward to that, that will enhance our city centers, I think, but
Wolf Richter:it's just brutal out there for investors and for lenders for, we thankfully.
Wolf Richter:biggest lenders to the office sector aren't the banks.
Wolf Richter:I mean, that's part of it.
Wolf Richter:But the investors, life insurance companies, pension funds, international
Wolf Richter:banks, collateralized loan obligations, commercial mortgage backed securities.
Wolf Richter:I mean, these are the primary lenders to the office sector, not necessarily the U.
Wolf Richter:S.
Wolf Richter:banks.
Wolf Richter:And so, thankfully, the risks are not really taking down
Wolf Richter:the banks as much as we might.
Wolf Richter:and that's a good thing on these.
Wolf Richter:These losses are spread across the globe, across investors.
Wolf Richter:but it's just brutal out there.
Wolf Richter:It, I mean, it's a depression in that sector and it's going to last.
Wolf Richter:And, the solution is conversion to residential and tearing them down.
Todd Miller:I never even thought about that conversion to residential.
Todd Miller:It makes a lot of sense though, very interesting.
Wolf Richter:Yeah when you hear that some of the experts talk about this, it's.
Wolf Richter:only a very small number of buildings that can, that you can even do that with.
Wolf Richter:They have to have a fairly narrow footprint, these big square
Wolf Richter:buildings, big square footprints.
Wolf Richter:You have to have windows in apartments and condos.
Wolf Richter:You can't have, you can't live in a windowless environment.
Wolf Richter:And you have to have windows you can open and, Yeah, so that they're
Wolf Richter:experimenting with putting a big air shaft in the middle of a square
Wolf Richter:building and those kinds of things.
Wolf Richter:But, you know, it's not easy to convert a 1980s office building into residential.
Wolf Richter:It may be impossible.
Wolf Richter:So, yeah, they will pick and choose the ones that they can convert and
Wolf Richter:the rest will sell for land value to new investors and they redevelop it.
Todd Miller:Very interesting.
Todd Miller:I have a friend who has a business in Chicago and about 10 years ago,
Todd Miller:they leased a couple floors on a, office building near O'Hare and,
Todd Miller:you know, spent a lot of money on the build out and getting it all
Todd Miller:right for them and everything.
Todd Miller:And, you know, then of course, about six years into that COVID hit.
Todd Miller:And, now they're all working from home.
Todd Miller:So they actually have, walked away from, the end of their lease or maybe a little
Todd Miller:early and are moving to a smaller space, a little bit more outside of town, but
Todd Miller:it's interesting that building there.
Todd Miller:And I'm thinking, gosh, could that be residential?
Todd Miller:it is a neat location right near O'Hare.
Todd Miller:but, you're right.
Todd Miller:It's kind of a big block also,
Wolf Richter:Well, Also, when I was living in the Washington, D.
Wolf Richter:C.
Wolf Richter:area, I lived in Rosslyn, so that was in the flight path of
Wolf Richter:the airport.
Wolf Richter:And, I mean, you can scratch the bellies of the planes going by, and, on the
Wolf Richter:way down, they're not that loud, but on the way up, it's just atrocious.
Wolf Richter:and back then they stopped the traffic at around 11 o'clock at
Wolf Richter:night and they started at six.
Wolf Richter:So that those are the seven hours you can sleep.
Wolf Richter:And, you can't be on the phone when that happens.
Wolf Richter:so, putting residential into, The area of an airport, I think you have to spend
Wolf Richter:lots of money soundproofing the building.
Todd Miller:Sure.
Todd Miller:Makes sense.
Todd Miller:Well, you wrote recently about what you see as far as the possible impact
Todd Miller:of AI on commercial real estate.
Todd Miller:Can you kind of clue us in on that a little bit?
Wolf Richter:Yeah, that came from the real estate industry.
Wolf Richter:Actually.
Wolf Richter:I really hadn't thought that much about it and AI I mean people make fun of it
Wolf Richter:and we as consumers are in contact with it now all the time we deal with the
Wolf Richter:chatbots and we go The major, hospital chains and doctor offices, and they use AI
Wolf Richter:in their interpretation of medical tests.
Wolf Richter:And, they also have a doctor look at it.
Wolf Richter:But you, if you get an EKG, it will, the system in there
Wolf Richter:will tell you what you have.
Wolf Richter:And the same with scans and other things.
Wolf Richter:So, AI's already moved into every aspect of our lives and has been for a long time.
Wolf Richter:There's nothing new.
Wolf Richter:What's newer is that this generative.
Wolf Richter:AI, so that, that produces things, produces new stories and pictures and
Wolf Richter:videos and, summaries and analyses and reports, all kinds of stuff.
Wolf Richter:and that used to take lots of man hours to do.
Wolf Richter:And now it takes seconds with AI and some of the news reporting has been
Wolf Richter:generated by AI already all major.
Wolf Richter:some of the major ones are using it like Bloomberg and Reuters and so forth and
Wolf Richter:Market Watch and they may or may not disclose that this was produced by AI.
Wolf Richter:And, what one person used to do in a day, AI can do in seconds.
Wolf Richter:And, you know, I call AI a generative AI produces a lot of quote, fluent bullshit.
Wolf Richter:And, but
Wolf Richter:humans do that too.
Wolf Richter:You know, it's not like humans don't.
Wolf Richter:And, I don't know.
Wolf Richter:Sometimes AI may be better than humans, but it's everywhere.
Wolf Richter:And so what we're seeing now is companies replacing humans with AI.
Wolf Richter:So they may have an editor, Editing 20 AI stories a day instead of 20 reporters
Wolf Richter:writing them and one editor editing them.
Wolf Richter:So, and that's happening and, it's happening in other industries.
Wolf Richter:and so you're reducing, and it happens in coding, in tech.
Wolf Richter:And, customer service and all kinds of stuff and in advertising and
Wolf Richter:what people used to do, some of the basic stuff is now done by AI.
Wolf Richter:and so the real estate industry sees this as a further shoot to drop on it.
Wolf Richter:So when.
Wolf Richter:Not now, not today, but sometime in the near future that it will reduce, office
Wolf Richter:employment further and will reduce the need, the requirement for office space.
Wolf Richter:And, it's on top of the issues we already have.
Wolf Richter:They're seeing this coming down the road.
Wolf Richter:And, rather than office, the office market bottom, bottoming out, they
Wolf Richter:think that maybe it, it might still have those challenges ahead of it.
Todd Miller:Very interesting.
Todd Miller:Yeah, you sometimes you don't think about the far reaching impacts of
Todd Miller:technology, but, can be significant.
Todd Miller:So let's switch and talk a little bit about manufacturing infrastructure.
Todd Miller:And it seems like there are a lot of plants being built in the U S right now.
Todd Miller:In fact, one of the most noteworthy is the Intel plant going up near
Todd Miller:us in Columbus, Ohio right now, or on the outskirts of Columbus.
Todd Miller:who are some of the movers and shakers you're seeing in this
Todd Miller:manufacturing and infrastructure?
Todd Miller:do you think this is sustainable?
Todd Miller:Is it going to continue?
Wolf Richter:Well, right now, the biggies that get all the headlines
Wolf Richter:are the semiconductor manufacturers.
Wolf Richter:They're setting up huge, expensive plants.
Wolf Richter:And in multiple states, and you mentioned one of them, and, but
Wolf Richter:they're big time in Arizona.
Wolf Richter:And I mean, where is Arizona going to get the water to
Wolf Richter:supply these plants long term?
Wolf Richter:That's going to be an issue.
Wolf Richter:But, you know, they are throwing billions of dollars at these
Wolf Richter:plants and a big plant like that.
Wolf Richter:the construction cost is not the main thing in it, the main expense
Wolf Richter:is equipping it and then, getting it to work, training the people, those
Wolf Richter:kinds of things, and it can run up to 20 billion to do one of those plants.
Wolf Richter:So this is a huge input in the economy.
Wolf Richter:these are massive movements that we're seeing, and I'm tracking the
Wolf Richter:construction spending, on, on factories.
Wolf Richter:And so that's dollars spent on building the factories, not
Wolf Richter:putting the equipment into them.
Wolf Richter:And that has tripled over the last few years.
Wolf Richter:So, the United States has been way behind in manufacturing expansion.
Wolf Richter:And we've kind of offshored all of this.
Wolf Richter:The pandemic has taught everybody that there are risks involved.
Wolf Richter:The United States ran out of a whole bunch of stuff.
Wolf Richter:We had shortages on everything.
Wolf Richter:I mean, I remember you talking about the shortages.
Wolf Richter:You ran into Todd.
Wolf Richter:I ran into shortage with my beer mugs that I sent out as gifts.
Wolf Richter:And, I mean, everything was impacted by that.
Wolf Richter:And it taught people a lesson about how not to become too
Wolf Richter:dependent on China and on imports.
Wolf Richter:And, it taught people a lesson about how expensive it really is to
Wolf Richter:manufacture offshore and to bring this stuff in and you lose your
Wolf Richter:intellectual property, especially with semiconductors and autos and high
Wolf Richter:speed trains and that kind of stuff.
Wolf Richter:And there's a huge corporate rethink now going on in, in
Wolf Richter:trying to manage that better.
Wolf Richter:Now, before then, we already had a huge change in the United States, that started.
Wolf Richter:with fracking in 2010, 2012, when fracking for natural gas and then for crude
Wolf Richter:oil became, commercially very viable.
Wolf Richter:and since then, you know, the United States sort of ran out of, so before
Wolf Richter:2007, 8, you know, people thought, you know, it says we run out of natural
Wolf Richter:gas, and we would have to, you know, beg the Saudis to sell us more oil.
Wolf Richter:And, since then, the United States has become the largest
Wolf Richter:natural gas producer in the world.
Wolf Richter:In 2014, that's when we did that, we've become last year
Wolf Richter:the largest, liqui liquified natural gas exporter in the world.
Wolf Richter:'cause we're overproducing, we're producing so much that we're exporting
Wolf Richter:large amounts via pipeline to Mexico and a small amount to Canada, but a
Wolf Richter:very large amount now via, l and g to other countries, including Europe.
Wolf Richter:when Iran into trouble with its supply from Russia.
Wolf Richter:And, we've become the largest crude oil producer in the world.
Wolf Richter:we're producing more, petroleum products than we use.
Wolf Richter:So we've become, an exporter of those products.
Wolf Richter:We may import crude oil and export and refine them.
Wolf Richter:Yeah, here in California and in the Bay Area, we've got a bunch of
Wolf Richter:refineries that import crude oil and export, gasoline, jet fuel.
Wolf Richter:diesel to South America.
Wolf Richter:And this is a huge trade.
Wolf Richter:And this has cost energy prices in the United States to be, far
Wolf Richter:below, where they are in Europe.
Wolf Richter:And that has been the case for years.
Wolf Richter:our natural gas prices here in the United States, they've collapsed.
Wolf Richter:I mean, they're lower than they were 15, 20 years ago
Wolf Richter:and, because of overproduction.
Wolf Richter:And so we have seen a lot of European manufacturers set up
Wolf Richter:shop here in the United States.
Wolf Richter:Due to the low cost of energy, and that happened years ago, that
Wolf Richter:started years ago, and it continues the petrochemical industry.
Wolf Richter:A lot of European companies have moved in.
Wolf Richter:It's, the industries that use a lot of natural gas, either as
Wolf Richter:input or, for energy purposes.
Wolf Richter:And, so that is a manufacturing trend that predates the pandemic.
Wolf Richter:And, that has been one of the big drivers in growth in that sector.
Wolf Richter:Now we've got the reshoring going on.
Wolf Richter:So these are mostly American manufacturers or in semiconductors.
Wolf Richter:it's, it's foreign manufacturers also that set up shop here.
Wolf Richter:in the mechanical, electromechanical industry, Siemens has The German
Wolf Richter:company has been setting up shop here, in the recent years, to
Wolf Richter:manufacture, electrical equipment, trains are starting to be manufactured.
Wolf Richter:So, commuter trains, those kinds of things are starting to be manufactured here.
Wolf Richter:Yeah, this is a slow process and it's not like we're bringing these jobs back.
Wolf Richter:It's not that process where we send, you know, 20 million jobs to China.
Wolf Richter:Now we're bringing 20 million jobs back.
Wolf Richter:What we're doing is we're expanding in the United States and, There are new
Wolf Richter:jobs being created here in manufacturing, and they're not in many cases.
Wolf Richter:They're highly qualified people to work in the semiconductor plant.
Wolf Richter:You may have to have an advanced degree in one of the STEM fields.
Wolf Richter:In many other manufacturing areas, you have to be highly trained.
Wolf Richter:Many jobs require college degrees, technical degrees.
Wolf Richter:So it's a different kind of manufacturing than what it was decades ago.
Wolf Richter:So the jobs are different.
Wolf Richter:They're fewer, they're not as many jobs in the plant, but they're
Wolf Richter:much more highly qualified and probably more difficult to fill.
Wolf Richter:And you can't just take a bunch of immigrants and stick them in the plant.
Wolf Richter:You know, that doesn't work anymore.
Wolf Richter:so, Yeah, it's changing the economy here and manufacturing is only a relatively
Wolf Richter:small part of the US economy, but it has a huge secondary and tertiary
Wolf Richter:impact on the rest of the economy.
Wolf Richter:And so overall, I think what we're looking at is kind of a U turn
Wolf Richter:from two decades of offshoring.
Todd Miller:so the plants they're building, I mean, surely
Todd Miller:they are concerned about how they're going to find workers.
Todd Miller:And, you brought up a good point.
Todd Miller:It's not like those construction workers can just become factory workers now.
Todd Miller:And so you hit, you know, some equilibrium that way.
Todd Miller:Um, you know, do you see that being a lot of folks coming into the country in
Todd Miller:order to fill some of those jobs or what?
Todd Miller:What do you see happening
Wolf Richter:Well, we already got those folks here.
Wolf Richter:You know, they came in.
Wolf Richter:We, according to estimates from the Congressional Budget Office, the last two
Wolf Richter:years, we got six million people in here.
Wolf Richter:So, that's a huge number of people.
Wolf Richter:Of course, most of them will not be qualified to work in
Wolf Richter:these manufacturing plants.
Wolf Richter:And they'll be driving Ubers and they'll be doing other stuff, you
Wolf Richter:know, and they're making sandwiches and doing different things.
Wolf Richter:And some of them may be qualified.
Wolf Richter:but might take some time in training.
Wolf Richter:the solution is to really is to train and we've abandoned manufacturing
Wolf Richter:as a country for a long time.
Wolf Richter:So there's a lot of things that we've walked away from a lot of expertise,
Wolf Richter:the older people retired and the younger people haven't learned it.
Wolf Richter:and so this is a, is this a process we have to go through and, it's not instant.
Wolf Richter:So you have to train the people.
Wolf Richter:I mean, they're even short on construction workers.
Wolf Richter:It's not like we have enough construction workers.
Wolf Richter:So when they have these big projects, they have trouble building
Wolf Richter:them because it's labor issues.
Wolf Richter:And so.
Wolf Richter:You know, it's not like we can build a plant and then stick,
Wolf Richter:500 immigrants into it to work.
Wolf Richter:Yeah, that's not how it works.
Wolf Richter:it will require a lot of training.
Wolf Richter:A lot of, schools will have to get involved.
Wolf Richter:And companies will have to tell the educational system what they need.
Wolf Richter:And, long term process, it will be good.
Wolf Richter:But it's going to have some rough spots, I think.
Todd Miller:Yeah, it's very interesting.
Todd Miller:It's not like you can have someone one day, using a spatula and the
Todd Miller:next day they're working in one of these high tech factories.
Todd Miller:So, well, last time we talked, we were really very much in the midst of
Todd Miller:a lot of supply chain difficulties.
Todd Miller:And you know I know that seems to be better at some point.
Todd Miller:I do think there are some ongoing ramifications.
Todd Miller:I know one of the ramifications we have seen as a manufacturer is, even
Todd Miller:though maybe supply has gotten better, as a smaller company, it seems like
Todd Miller:we don't mean as much to our suppliers as we did, before all that happened.
Todd Miller:But, can you reflect some on the state of things as far as supply chain right now?
Wolf Richter:Yeah, like you said, it's, Most of the problems, the
Wolf Richter:large problems, have been addressed.
Wolf Richter:they're sort of back to normal.
Wolf Richter:There are still issues.
Wolf Richter:I mean, the big one was the auto industry with the semiconductor shortages, and then
Wolf Richter:it just kind of shut down the industry.
Wolf Richter:And that's a huge industry in the United States, auto manufacturing, all the
Wolf Richter:major Japanese automakers, everyone who sells in the United States, manufactures
Wolf Richter:in the United States or in Mexico.
Wolf Richter:And, and they all had issues.
Wolf Richter:And Shutdown production, slow production, and that's largely removed.
Wolf Richter:So now we have plenty of production of vehicles in the United States.
Wolf Richter:They're piling up.
Wolf Richter:that's good.
Wolf Richter:Prices are starting to come down a little bit, and that's good.
Wolf Richter:That's what consumers need.
Wolf Richter:So I don't, there may still be some issues on some specific product.
Wolf Richter:But overall, that industry looks like it's getting what it needs.
Wolf Richter:And it's putting our cars and many automakers are producing a lot
Wolf Richter:more cars than they're selling.
Wolf Richter:So they have restocked and now they've overstocked and now they need to cut their
Wolf Richter:big fat profit margins and cut prices.
Wolf Richter:And that's kind of a painful thing to do.
Wolf Richter:But that's what that's the next step.
Wolf Richter:in the building industry, occasionally you run into problems.
Wolf Richter:I mean, there's occasionally issues.
Wolf Richter:you know, we look at the indices of supply chain issues and they're
Wolf Richter:essentially back to normal it looks like.
Wolf Richter:So we've seen geopolitical issues crop up, and less so here than in Europe,
Wolf Richter:but with the issues in the Middle East, shipments that were routed through the
Wolf Richter:Suez Canal are now being routed around it.
Wolf Richter:So that has delayed by months, all kinds of shipments.
Wolf Richter:And, you know, Tesla and other companies have complained about that.
Wolf Richter:They've got a bunch of cars made in China, stack on car carriers, and
Wolf Richter:they're going around Africa to, to get where they need to go and, to Europe.
Wolf Richter:And, yeah, so, so that's a new issue.
Wolf Richter:In terms of transpacific trade, that really doesn't impact
Wolf Richter:us, but prices have come up.
Wolf Richter:So shipping prices have come up.
Wolf Richter:And, so we're seeing a little bit of that.
Wolf Richter:but overall, I think we're in pretty decent shape in terms of supply.
Todd Miller:What about housing?
Todd Miller:What are some of the hot markets right now?
Todd Miller:Or, you know, bubbles, if you will, where supply is short, prices are high.
Todd Miller:and are there any markets out there maybe where there's a housing glut?
Todd Miller:I doubt there are.
Todd Miller:but just kind of curious to reflect on that and how mortgage
Todd Miller:rates are influencing things.
Wolf Richter:In terms of mortgage rates, let's start with that.
Wolf Richter:People who have, 3 percent mortgages They're not particularly incentivized to
Wolf Richter:sell the house and to buy a new house.
Wolf Richter:So that's a the classic thing, you know when you get older, maybe you
Wolf Richter:want a smaller house Or you want to get a different job you sell your
Wolf Richter:house buy a new one in a different city Or you want a bigger house
Wolf Richter:or and that has slowed down a lot.
Wolf Richter:So, People who have these mortgages, these 3 percent mortgages, have
Wolf Richter:essentially, many of them, have stepped away from the housing market.
Wolf Richter:So they're not buying.
Wolf Richter:So that's why demand is down so much.
Wolf Richter:We had a huge plunge in demand, but they're not selling either.
Wolf Richter:So we've had this huge plunge in supply.
Wolf Richter:And, an inventory.
Wolf Richter:And, so this kind of went down together.
Wolf Richter:And my estimate is that about 20 percent of the entire housing market
Wolf Richter:stepped away from the housing market.
Wolf Richter:It's just not there anymore.
Wolf Richter:And they're not there as buyers, and they're not there as sellers.
Wolf Richter:And so now we have the people that have to buy and sell because they did move,
Wolf Richter:they get a different job, and, they have to sell their house, buy a new house,
Wolf Richter:or they start a family to buy a house.
Wolf Richter:And so there are people that are having to buy.
Wolf Richter:And, you know, they're selling, some of them are selling their existing house.
Wolf Richter:So they're putting one on the market and they're buying one.
Wolf Richter:They're putting one, taking one off the market.
Wolf Richter:So that's in balance.
Wolf Richter:But then we have the younger generations coming in, their first time buyers,
Wolf Richter:and they're, they don't sell anything.
Wolf Richter:They just buy.
Wolf Richter:And, they're kind of balanced by the older people selling and not buying
Wolf Richter:either because they die or they're moving to a home or because they're moving to
Wolf Richter:an apartment or some other facility.
Wolf Richter:and the generation now that's moving out of the housing market very slowly was
Wolf Richter:the largest generation ever, the boomers.
Wolf Richter:And so now the generation that has moved into the housing market very
Wolf Richter:strongly already are the millennials, and they're now the largest generation.
Wolf Richter:And they're followed by generation C, the big buyers too.
Wolf Richter:So those two combined are the biggest, Homebuyers now, and, they're struggling.
Wolf Richter:They're, they make pretty good money overall, and, but interest rates
Wolf Richter:are high, and, home prices are high, and, they're eager to buy, and so
Wolf Richter:they're the ones that are driving up the prices, because they're the big
Wolf Richter:force, and the, they're the buyers.
Wolf Richter:They're in there, and they want to start a family, and they're
Wolf Richter:eager, and they're overbidding and they're doing those kinds of things.
Wolf Richter:And they've done that and for a few years.
Wolf Richter:So that's the driving force behind the prices.
Wolf Richter:And, there, there's plenty of inventory.
Wolf Richter:Active listings have risen now that we're in the fourth year in a row.
Wolf Richter:So we've had a big plunge in active listings during the pandemic and
Wolf Richter:every year now they've been higher.
Wolf Richter:And so now they're the highest since before the pandemic.
Wolf Richter:So there's, enough inventory out there.
Wolf Richter:It's no longer a shortage.
Wolf Richter:The home builders are building at a very strong pace.
Wolf Richter:They have a huge amount of inventory for sale and they're cutting prices
Wolf Richter:and they're buying down mortgage rates and they're doing all the things that
Wolf Richter:they need to do to move the inventory because they have to build homes.
Wolf Richter:They cannot stop building homes.
Wolf Richter:You know, they're in the business to, to build homes.
Wolf Richter:And so they will do that and then we'll do whatever it takes to move them.
Wolf Richter:And, they're making smaller homes.
Wolf Richter:They're making cheaper homes.
Wolf Richter:They're squeezing the profit margins a little bit.
Wolf Richter:So there's supply on the market.
Wolf Richter:There are new homes are now in terms of mortgage rates and homebuilders
Wolf Richter:buy down the mortgage rates.
Wolf Richter:You can buy a new house, for a smaller payment than you can
Wolf Richter:buy an existing similar house.
Wolf Richter:The dynamics are there for prices to come down.
Wolf Richter:There's plenty of supply now.
Wolf Richter:And, we have this very strong buying force in the younger generation that's
Wolf Richter:counterbalanced to some extent by the older generation getting out.
Wolf Richter:but yeah, prices are just too high and that's a problem.
Wolf Richter:They're not too high in every market.
Wolf Richter:You go to Tulsa and prices have doubled in Tulsa the last few years.
Wolf Richter:I mean, that's really bad too, but they were really low.
Wolf Richter:So that's doubled from a really low level and compared to San Francisco,
Wolf Richter:they're still very low and Tulsa, you know, I used to live there for
Wolf Richter:a long time, so I follow the market.
Wolf Richter:I owned a condo that came up for sale and I sold it for 210, 000 back in, when was
Wolf Richter:that, 2001 or something, and it was on the market for 160, 000, sold 160, 000
Wolf Richter:in, in about 2016 or something like that.
Wolf Richter:So that's the market in Tulsa.
Wolf Richter:It just went downhill and downhill for a long time.
Wolf Richter:And I bought the condo from a bank that then collapsed.
Wolf Richter:And my neighbor bought his condo from the FDIC, the same bank.
Wolf Richter:After it collapsed, FDIC picked it up.
Wolf Richter:So there's a housing bust going on in Tulsa that lasted 20 years.
Wolf Richter:And, it started in the 1980s and it wasn't, the prices didn't
Wolf Richter:go up until a few years ago.
Wolf Richter:So this happens, it happens in lots of cities.
Wolf Richter:It's just the national average is kind of, pave over that.
Wolf Richter:And people say you can't lose money in real estate or housing will never go down.
Wolf Richter:Well, in the local markets, housing can go down and can stay down for decades.
Wolf Richter:So we have some markets that are still pretty hot and we
Wolf Richter:have other markets that are not.
Wolf Richter:and, we have a shift towards higher end homes that are now selling.
Wolf Richter:So all the medium prices are shifting up.
Wolf Richter:Because the larger share of homes that sell are higher end homes, because
Wolf Richter:a lot of times they don't need to finance or they have plenty of money
Wolf Richter:to make the higher mortgage payments.
Wolf Richter:What we're not seeing is the lower end selling.
Wolf Richter:So, we have seen an increase in median prices simply because of the shift.
Wolf Richter:Not that the prices actually changed, but there were more expensive homes in the
Wolf Richter:mix and that pushed up to median price.
Wolf Richter:So that's, it's a really screwed up market right now.
Wolf Richter:I call it a frozen market because there's demand is down by 20, 25%.
Wolf Richter:Supplies down has been down for a long time, but it's been coming up from the
Wolf Richter:low levels, because not enough demand.
Wolf Richter:And so the inventory sits longer and, sellers don't want to
Wolf Richter:get these aspirational prices.
Wolf Richter:So that allows to cut the prices.
Wolf Richter:And so you have this dynamic where the houses that do sell
Wolf Richter:at a still fairly high price.
Wolf Richter:And there's some cities like Austin and San Francisco and others have
Wolf Richter:seen significant price declines.
Wolf Richter:And, some of the tech cities and some other parts and in Southern
Wolf Richter:California, you have price increases.
Wolf Richter:But that's the dynamic we're seeing.
Wolf Richter:We're seeing a plunge in Demand.
Wolf Richter:We're seeing very high prices and high mortgage rates that don't work together.
Wolf Richter:the demand has plunged because you can't make it work.
Wolf Richter:You can't make Those high prices with 7 percent mortgages work.
Wolf Richter:And, and it just will take Years to work out.
Wolf Richter:I don't think there is a solution to that other than, you know,
Wolf Richter:taking your time and, waiting for this to settle down somehow.
Todd Miller:Very interesting.
Todd Miller:I want to talk a little bit about, back during COVID, we heard a lot about
Todd Miller:people starting businesses and, I think there were record numbers of businesses
Todd Miller:being started back in 2020, 2021.
Todd Miller:Any idea how those businesses are doing now, you know, three
Todd Miller:years into the whole thing?
Todd Miller:I'm just kind of curious.
Todd Miller:Are they making it or, what's going on there?
Wolf Richter:You know small businesses and startups, that's a risky thing to do.
Wolf Richter:And among them, the riskiest thing to do is restaurants.
Wolf Richter:And it's like 90 percent of restaurants don't survive the first five years or so.
Wolf Richter:so the mortality rate of small businesses is very high and we don't really
Wolf Richter:track that, uh,, what we do track is businesses that are no longer there.
Wolf Richter:So, when they disappear.
Wolf Richter:But it could be that an owner sold the business or, after making a certain
Wolf Richter:amount of money they decided they're going to retire and they shut it down.
Wolf Richter:So it includes all kinds of things.
Wolf Richter:So We don't really, know how many businesses fail in that sense.
Wolf Richter:And we would call it business failures because they're gone.
Wolf Richter:but we don't know why they're gone because they sold or because they,
Wolf Richter:the owner retired or, because they went bankrupt and we can
Wolf Richter:track the bankruptcies and, But a lot of small businesses don't owe a
Wolf Richter:lot of money and they don't file for bankruptcy when it's not worth it anymore.
Wolf Richter:They don't have to, they just pay off their stuff and
Wolf Richter:move on and get another job.
Wolf Richter:and, Gallup just came out with an interesting survey yesterday.
Wolf Richter:and, I just, I'm just throwing that in there.
Wolf Richter:Americans, love to be their own boss.
Wolf Richter:and so they came up with this percentage and it's the majority
Wolf Richter:of Americans is 60 some percent of Americans want to be their own boss.
Wolf Richter:They don't want to work for the man anymore and they're tired of it.
Wolf Richter:and they want to strike out on their own and do their own thing.
Wolf Richter:And only 30, only about a third of Americans want to work.
Wolf Richter:For somebody else want to be employed by somebody else and this is a huge mismatch
Wolf Richter:because most americans are actually employed and You know, so that's reality
Wolf Richter:and a lot of gig work your own boss, but he doesn't pay and it's not worth it
Wolf Richter:So people when they say they want to be their own boss they're thinking about a
Wolf Richter:profitable enterprise that they can do and maybe expand maybe have some employees
Wolf Richter:and Or maybe some consulting work that they can do after they leave the company
Wolf Richter:You And, so Gallup found that Americans are just really eager to do that.
Wolf Richter:And, the numbers of business starts, as you mentioned, spike during the pandemic,
Wolf Richter:and it's come down a little bit, but it still has, remain at a very high level,
Wolf Richter:people continue to start new businesses at a much higher than pre COVID level.
Wolf Richter:And I'm my own boss and, you know, I know, and you're your own boss.
Wolf Richter:and we know that, we're not really our own boss.
Wolf Richter:You know, we have bosses out there.
Wolf Richter:They're our customers, they're our readers.
Wolf Richter:And, you know, we get bossed around all the time.
Wolf Richter:It's not like you can decide whatever you want.
Wolf Richter:And, but there's, there's, there's.
Wolf Richter:sort of romantic view that if you your own boss, you can decide what
Wolf Richter:to do and you can be more creative.
Wolf Richter:and people are, according to the Gallup poll, people are willing to take
Wolf Richter:substantial financial risks to do this.
Wolf Richter:And, they go out on a limb to do this.
Wolf Richter:and that's of course, the American spirit.
Wolf Richter:You take a huge risk to try to make it big.
Wolf Richter:and if you don't, if you fail, well, you get a job and do something else.
Wolf Richter:This has grown after the pandemic.
Wolf Richter:So this is not something that, that is almost there, but it, this.
Wolf Richter:It's a bigger thing now and there's a more interest in doing that and more
Wolf Richter:people that are actually doing that and that's a quite an interesting creative
Wolf Richter:force in the economy and of course we distinguish between businesses that will
Wolf Richter:never hire anybody and businesses that have a high propensity to hire people.
Wolf Richter:So the Census Bureau that tracks the stuff that has this category for high propensity
Wolf Richter:businesses, startups, and companies that have funding that have payroll coming.
Wolf Richter:so when they apply for an employer identification number, that's how
Wolf Richter:we track these business starts.
Wolf Richter:yeah, they're the ones that are likely to hire people.
Wolf Richter:And, that number is higher also than before the pandemic.
Wolf Richter:It's it didn't jump as much, but it has also grown.
Wolf Richter:And, some of these companies are the famous startups that we hear about, but
Wolf Richter:you know, many hundreds of thousands of them that you'll never hear about.
Wolf Richter:They're just small little companies employing a few people and they do well
Wolf Richter:and the owners make nice amounts of money and producing quality products
Wolf Richter:and services and everybody's happy.
Wolf Richter:And, yeah, this is, and it's happening across industry.
Wolf Richter:So, it's still there.
Wolf Richter:It's working.
Wolf Richter:The pandemic has changed a lot of things and that's one of them.
Todd Miller:Very interesting.
Todd Miller:you know so much about so many different topics.
Todd Miller:I'm kind of curious.
Todd Miller:You know, what are you reading these days?
Todd Miller:Where do you get your knowledge from?
Todd Miller:Or any good books you've been reading recently to recommend?
Wolf Richter:Well, I'm a huge reader of reports, daily reports,
Wolf Richter:and, stuff that is written or that's produced, By, various government
Wolf Richter:agencies and private sector, companies, all the data, economic, financial
Wolf Richter:data, et cetera, that I report on.
Wolf Richter:And I'm, I really live in the day now.
Wolf Richter:So, years ago, I mean, we're talking years ago, a decade, over a decade
Wolf Richter:ago, I stopped reading books.
Wolf Richter:I just stopped.
Wolf Richter:And I have, so I have two master's degrees.
Wolf Richter:I have my last one, so that's from 1980s, MBA in finance.
Wolf Richter:But before that I have a master's in English and literature and, a
Wolf Richter:bachelor's in literature and in English.
Wolf Richter:and I have, bookcases up to the ceiling.
Wolf Richter:I've read a gazillion books in my life.
Wolf Richter:And I, I just quit cold stop at some point and I no longer read books.
Wolf Richter:I'm, I live now in the day and I can't recommend any books.
Wolf Richter:I used to love reading books about, novels about businesses that are based
Wolf Richter:on a real life experience and that people fictionalized and like Bombardier
Wolf Richter:by Pope Ronson and some of those, but that came out a long time ago.
Wolf Richter:and, and that's one of my all time favorite books, Bombardier.
Wolf Richter:it's, about a bond trader when First Boston was still there and they had
Wolf Richter:a trading office in San Francisco.
Wolf Richter:And, so that when that he worked at First Boston and so that
Wolf Richter:book reflects his experience and it's just really fun to read.
Wolf Richter:But I wouldn't, you know, I just don't have the time anymore.
Wolf Richter:You know, I'm, I get up early and go to bed late and I work all the time.
Wolf Richter:And so being my own boss, you know, get you the worst, your own worst boss.
Todd Miller:Exactly.
Todd Miller:And I got to admit, I don't read near like I used to as far as books either.
Todd Miller:And, we did have someone a few episodes ago who recommended
Todd Miller:a book called Freedom's Forge, and I bought that and read it.
Todd Miller:And that was really good.
Todd Miller:It was about what it took to ramp up for, the production of weaponry and
Todd Miller:so forth during World War II and how the automotive industry, was a strong
Todd Miller:supporter of that, which I knew nothing about so that was very interesting.
Todd Miller:Well, you live in San Francisco.
Todd Miller:How are things there these days?
Wolf Richter:Well, we love it.
Wolf Richter:It's great.
Wolf Richter:It's beautiful place.
Wolf Richter:Right now I'm looking out the window here.
Wolf Richter:We see a little bit of
Wolf Richter:smoke from the wildfires move in.
Wolf Richter:So that's starting with the time of the year.
Wolf Richter:We've got the first fires in the Bay Area.
Wolf Richter:And I mean, that's a problem.
Wolf Richter:you know, the, The city itself is beautiful and attracts lots of tourists,
Wolf Richter:and so we live in the touristy area, and you have to get used to being
Wolf Richter:surrounded by tourists, and, it's a little different, and a lot of tourists now.
Wolf Richter:I mean, this place is packed with tourists, But we're
Wolf Richter:close to the waterfront.
Wolf Richter:It's just beautiful.
Wolf Richter:And, I go financial district, that's half an hour and foot from here.
Wolf Richter:And during the pandemic, during the lockdowns, you know, I did a picture
Wolf Richter:series on it and it was just a rush hour in the financial district, eight
Wolf Richter:o'clock in the morning, you know, and it was just, there's nobody on the street.
Wolf Richter:it was beautiful in a way, you know, it was just sunrise in San Francisco and
Wolf Richter:financial district with nobody there.
Wolf Richter:And it changed.
Wolf Richter:Yeah, so now the, there's plenty of people walking around going about
Wolf Richter:the business, but it's not as packed.
Wolf Richter:And we, like I said, you know, a third of the office space
Wolf Richter:is on the market for lease.
Wolf Richter:it's in other cities too.
Wolf Richter:So there's less few people coming in and San Francisco is sort of
Wolf Richter:the epicenter of working from home.
Wolf Richter:you have that going on.
Wolf Richter:The people make lots of money here.
Wolf Richter:The median household income is as close to $130,000 a year.
Wolf Richter:And, they're spending lots of money and young people make lots of money.
Wolf Richter:And so they're just, we're knee deep in money here, which is bad
Wolf Richter:because the city made too much money.
Wolf Richter:And this is corruption and everything everywhere.
Wolf Richter:we have a, you know, a huge gigantic budget.
Wolf Richter:San Francisco is not a big city.
Wolf Richter:You know, we've got a budget that's bigger than most of the state's budgets
Wolf Richter:and, And it's just way too much money is being thrown around and I think the best
Wolf Richter:thing that can happen to San Francisco would be just a recession that, that
Wolf Richter:turns off the money spigot and, and people, the San Francisco government
Wolf Richter:has to reconsider its priorities.
Wolf Richter:I mean, that's the big issue that I see is just how this money
Wolf Richter:gets thrown around everywhere.
Wolf Richter:And, you know, that, that's the problem I see.
Wolf Richter:and that's really not changing since the gold rush times.
Wolf Richter:It's been the same thing.
Wolf Richter:That's just what the city lives off and it comes in from the outside it's tourist and
Wolf Richter:it's tech and it's all this other stuff.
Wolf Richter:It's venture capital and it's jobs and, You know, it's just a phenomenon
Wolf Richter:having lived in Tulsa where really there was, after the oil bust,
Wolf Richter:during the oil boom in Tulsa was knee deep in money too, you know.
Wolf Richter:I mean, all the major oil companies were headquartered there.
Wolf Richter:They moved to Houston after the oil bust and so they're gone.
Wolf Richter:But, you know, when the money spigot gets turned off, it's really
Wolf Richter:tough, but it hasn't yet in San Francisco, money's still flowing.
Todd Miller:Well it's a beautiful city it's been about last time I was there
Todd Miller:about six years ago and I've been Kind of thinking I need to figure out a way to
Todd Miller:get out there again here before too long.
Todd Miller:So you just are watching everything.
Todd Miller:It seems I'm curious.
Todd Miller:What keeps you awake at night?
Wolf Richter:Well, I'm trying to sleep at night, you know, so, I mean,
Wolf Richter:we have a huge national problem.
Wolf Richter:In that we financialized everything and, and I, and now everything is
Wolf Richter:financialized, everything is leveraged.
Wolf Richter:The economy has become much more fragile because of that.
Wolf Richter:And, you know, Wall Street is out there.
Wolf Richter:We're also meeting the broader construct, trying to financialize
Wolf Richter:absolutely every little thing.
Wolf Richter:And, and then it's used as collateral and then it's used to bet and take risks.
Wolf Richter:And, You know, 15 years of interest rate repression, you know, have
Wolf Richter:furthered that along and high interest rates are going to help.
Wolf Richter:To calm that down a little bit, but that's not a panacea either, because
Wolf Richter:there's all these other issues that, that we now have to deal with, and so you've
Wolf Richter:raised rates, your leverage is getting in trouble, and so we're going to have
Wolf Richter:banks fail, we're going to have companies fail, we're going to have commercial
Wolf Richter:real estate is already in a depression.
Wolf Richter:A lot of these loans have already failed.
Wolf Richter:So, Yeah, I think the financial and commercial really so let me just talk
Wolf Richter:a little bit about that because that's how that's what financialization means.
Wolf Richter:In the olden days, an investor would fund the construction or maybe the
Wolf Richter:bank would fund the construction of an office tower and then a company would
Wolf Richter:buy that office tower and either a landlord and lease it out or a company
Wolf Richter:direct and then pay off the loan over time and so we have this office tower
Wolf Richter:on your books and you depreciate the building to zero over 30 years and
Wolf Richter:you leave the land value at cost.
Wolf Richter:And so when the price collapses of that office tower down the road,
Wolf Richter:your loans paid off, the building is depreciated to zero and you're
Wolf Richter:carrying in the land value at cost.
Wolf Richter:So if you have to sell it, you're still going to get more than land value for
Wolf Richter:it, the old land value and, your loans paid off and the buildings depreciated.
Wolf Richter:So you show a gain.
Wolf Richter:And we've had a case like that here in San Francisco, a bank sold a
Wolf Richter:building it owned for many years.
Wolf Richter:And, it, it sold for, you know, a discount of 65 percent of asking price,
Wolf Richter:but, the bank didn't lose any money.
Wolf Richter:Yeah, that was a not a financialized building and, and nobody got hurt.
Wolf Richter:With that sale, getting the sales price, getting got 65%, you know, it was just
Wolf Richter:an imaginary price cut, but there's no lenders involved that got a haircut.
Wolf Richter:Now there's no issues in it.
Wolf Richter:and the bank, booked a profit on it.
Wolf Richter:And so now what we have is office towers that were refinanced in 2020 and 2019.
Wolf Richter:and these loans are coming.
Wolf Richter:These are short term loans that are coming due, they're, these are old office
Wolf Richter:towers to refinance with huge amounts, and now there's lenders out there.
Wolf Richter:That put half a billion dollars into this office tower that's worth a half
Wolf Richter:a billion into an office tower that's not worth a hundred million or less.
Wolf Richter:And, and so that's what financialization does.
Wolf Richter:You know, we've taken a real estate product.
Wolf Richter:And turned it into financialized product and the loan was sold to mortgage
Wolf Richter:backed security holders was chopped up in little pieces And sold to retail
Wolf Richter:investors to bond funds to pension funds to all kinds of things And so
Wolf Richter:now the losses are rippling through the financial sector that way when there
Wolf Richter:really shouldn't be any losses if the building original one, had kept it on
Wolf Richter:the books, hadn't refinanced it and could now sell it for land value at a profit.
Wolf Richter:And that's the system that's now everywhere.
Wolf Richter:Everything has been leveraged.
Wolf Richter:Everything has been financialized.
Wolf Richter:And that keeps me up at night because this is risk, you know, this is
Wolf Richter:a high risk situation we're in.
Wolf Richter:And the Fed's trying to.
Wolf Richter:To manage that, you're trying to sort of tamp down on the risk
Wolf Richter:carefully, but not blow up something.
Wolf Richter:And, I don't know that keeps me awake at night.
Wolf Richter:I don't know that we'll manage to, to solve that, problem.
Todd Miller:Very interesting.
Todd Miller:Well, Wolf, thank you very much.
Todd Miller:This has been a great time together.
Todd Miller:we're close to the end of things, or at least what we
Todd Miller:call the business end of things.
Todd Miller:Is there anything we haven't covered yet today that you wanted to be
Todd Miller:sure to share with our audience?
Wolf Richter:Well, make sure you come to my site, wolfstreet.
Wolf Richter:com.
Wolf Richter:Business, finance, and money.
Wolf Richter:that's all we talk about in our politics.
Wolf Richter:Vibrant, usually well behaved commenting section and Todd has commented a
Wolf Richter:few times himself there very welcome comments And so so join us there.
Todd Miller:Very good, and we will put that in the show notes as well.
Todd Miller:So before we close out i'm going to ask you if you're willing to
Todd Miller:participate you did this first time you're on the show, in something
Todd Miller:we call our rapid fire questions.
Todd Miller:These are seven questions and all you got to do is give an answer that comes
Todd Miller:to mind I've made sure we have not asked any of the questions we asked last time.
Todd Miller:So are you willing to participate in rapid fire?
Wolf Richter:Okay.
Wolf Richter:I gotta keep it short then, right?
Todd Miller:Yeah As long as you want.
Todd Miller:Well, let's do it.
Todd Miller:I'll let Ethan ask the first one.
Todd Miller:Now you may want to temper this question now that we've talked to
Todd Miller:him or come up with another one, it's
Ethan Young:Yeah.
Ethan Young:I don't want to upset the equilibrium here, but the first
Ethan Young:question is not going to work.
Ethan Young:So I'll pick something maybe more fun, but, okay.
Ethan Young:I got one.
Ethan Young:One of our favorites is, so.
Ethan Young:Who is one person you would take with you in a zombie apocalypse?
Wolf Richter:Okay, my wife
Todd Miller:There you go, good answer.
Todd Miller:Question number two.
Todd Miller:What is your biggest pet peeve?
Wolf Richter:The biggest one
Todd Miller:Biggest one, oh, he's debating hard -here.
Wolf Richter:I just go through my list right now
Wolf Richter:Commenters on my website, dragging in BS from the internet
Wolf Richter:that they picked up somewhere
Todd Miller:No, gotcha.
Todd Miller:Yeah, understand that.
Ethan Young:Um, what's a cause you're passionate about?
Wolf Richter:healthy living.
Ethan Young:Nice.
Todd Miller:Love it.
Todd Miller:Next question.
Todd Miller:If you could time travel to any point in time, what would it be?
Todd Miller:What time would it be?
Wolf Richter:Well, I'd like to figure out how the Neanderthals lived.
Todd Miller:There you go.
Todd Miller:That sounds like a rough time to time travel to, but.
Wolf Richter:I've got some of their blood, so,
Todd Miller:they might be chasing you around, you might be their next meal.
Ethan Young:All right.
Ethan Young:Next one.
Ethan Young:if you could instantly become an expert on any topic, what would that topic be?
Wolf Richter:Well, it's got to be something good.
Wolf Richter:There's a lot of bad experts out there.
Ethan Young:Yeah, true.
Wolf Richter:let's see, expert, meaning something, somebody who's really good
Wolf Richter:at something, not just who pretends to be an expert, but who really nails it,
Todd Miller:Nails it or knows
Wolf Richter:knows
Wolf Richter:about it.
Wolf Richter:Yeah.
Todd Miller:Knowledge.
Wolf Richter:yeah, I would love to, to understand, how the technical
Wolf Richter:aspects of my work function.
Wolf Richter:So that's essentially the issues surrounding servers and the internet.
Ethan Young:Very cool.
Ethan Young:Yeah.
Wolf Richter:Because I
Wolf Richter:don't, I get, I have problems on my site and I, don't even know
Wolf Richter:how to deal with it.
Wolf Richter:So
Todd Miller:Yeah, I hear you.
Todd Miller:A lot of us experience those.
Todd Miller:Um, What is the most challenging thing you recall ever doing?
Wolf Richter:starting the site.
Todd Miller:It would be tough.
Todd Miller:I mean, how do you gain an audience?
Todd Miller:how do you make that happen?
Todd Miller:That's gotta be difficult.
Wolf Richter:Well, you know, if you know how hard it is, you're
Wolf Richter:probably not going to start.
Wolf Richter:that's the good thing You know, you just walk into it and you
Wolf Richter:say, I'm going to start this.
Wolf Richter:and, you have no idea how hard it actually is but then it's super
Wolf Richter:rewarding when you get there.
Todd Miller:How is the, beer mug supply chain recent?
Todd Miller:is it getting better?
Wolf Richter:Well, so I never could get the beer mug that
Wolf Richter:I wanted, the original mug.
Wolf Richter:And, and I needed them.
Wolf Richter:I had a long list of people that were on my mug list.
Wolf Richter:And, and so my mug flow forecast, was completely wrong because
Wolf Richter:I couldn't get anything done.
Wolf Richter:And so I switched, models.
Wolf Richter:So now I have a generation two mug.
Wolf Richter:And, that's a little slender, more slender than the other one and a little
Wolf Richter:more elegant and less, less stocky.
Wolf Richter:And I think, it, it did pretty well.
Wolf Richter:And, I don't sell them, you know, they're, they have artwork on them from a San
Wolf Richter:Francisco artist and, I give them out as gifts for larger donations to my site.
Wolf Richter:And so there, there's really no price.
Wolf Richter:So the last batch, I ordered them by the pallet.
Wolf Richter:So the last batch I got was the one that they had.
Wolf Richter:It's not what I wanted, but it's the one that they had.
Wolf Richter:And so that was a year and a half ago maybe.
Wolf Richter:And back then, you know, you still had to order what they had, not what you wanted.
Wolf Richter:And now I think it's changed.
Wolf Richter:Now probably, if I needed another order, I can probably get what I
Wolf Richter:want instead of what they have.
Wolf Richter:But it, you know, I still have enough.
Wolf Richter:And what I noticed is, my shipping costs have jumped and they have come
Wolf Richter:down a little bit, but they've gone up 40 some percent and over the pandemic.
Wolf Richter:And so when I ship them out and they've come down a little bit, but they haven't
Wolf Richter:come back down to where they were.
Wolf Richter:So in terms of supply chain, you know, the shipping costs are still there.
Todd Miller:Yeah.
Todd Miller:Shipping costs have been really huge impact on our business.
Todd Miller:That's for sure.
Todd Miller:So, I encourage folks, if you go to wolfstreet.
Todd Miller:com, you can find out what this beer mug talk was all about, but, it's pretty cool.
Todd Miller:Okay.
Todd Miller:Last question, Ethan.
Ethan Young:this one's a fun one.
Ethan Young:It's interesting to hear different answers from people, but, is there a
Ethan Young:product or service that you've recently purchased or found out about that's
Ethan Young:been kind of a game changer for you?
Wolf Richter:My hair clippers.
Todd Miller:Really?
Todd Miller:Okay.
Wolf Richter:Started cutting my own hair during the pandemic and
Wolf Richter:I'm not going back and my old barber died and I, before the pandemic
Wolf Richter:and then, I went to another set and they were pretty good, but,
Wolf Richter:you know, it's just hit and miss.
Wolf Richter:And you know, guys handling power tools, kind of fun to do and,
Ethan Young:It's a good way to look at it.
Ethan Young:Yeah.
Todd Miller:So what's the brand?
Todd Miller:What do you know offhand?
Wolf Richter:oyster maybe.
Wolf Richter:It's
Wolf Richter:not for professional
Wolf Richter:barbers.
Wolf Richter:It's just for people like me that do it once a month.
Todd Miller:Well, my, my barber about 30 years ago, has said, Todd,
Todd Miller:I can't take your money anymore.
Todd Miller:So I had to figure out how to do it myself at that point.
Todd Miller:well, this has been great.
Todd Miller:Thank you again, Wolf.
Todd Miller:I've really enjoyed this.
Todd Miller:for folks who do want to get in touch with you, follow what you're doing.
Todd Miller:go ahead and give us that information again.
Wolf Richter:Wolfstreet.
Wolf Richter:com.
Wolf Richter:So everything's there.
Wolf Richter:Everything's free.
Wolf Richter:No paywall.
Wolf Richter:Just join.
Todd Miller:And I gotta say he loves comments.
Todd Miller:He does always have some great, comments to what he posts and,
Todd Miller:he often responds to them too.
Todd Miller:So it's a great place to hang out and follow what he does.
Todd Miller:So good stuff.
Todd Miller:So, I think we were all successful getting our challenge words
Todd Miller:out and Ethan, I apologize.
Todd Miller:I used yours at one point too, without even really thinking about it.
Todd Miller:Ethan, your word was,
Ethan Young:Mine was equilibrium.
Ethan Young:I kind of shoved it in there, but I had maybe an better opportunity earlier,
Ethan Young:but yeah, you used it very well, Todd.
Ethan Young:So give you extra credit.
Todd Miller:and the word I had was spatula.
Todd Miller:Yeah, I worked in there.
Todd Miller:I said, you might trade your spatula for a different job.
Todd Miller:And Wolf, your word
Wolf Richter:Well, I have to say, Todd, yours was an
Wolf Richter:amazing use of the word spatula.
Ethan Young:Yeah.
Wolf Richter:That was great.
Wolf Richter:So my word was panacea.
Todd Miller:which you worked in extremely well.
Todd Miller:Thank you.
Todd Miller:Good stuff.
Todd Miller:Well, thank you again.
Todd Miller:And thank you to our audience for tuning into this very special
Todd Miller:episode of construction disruption.
Todd Miller:With the inimitable Wolf Richter of wolfstreet.
Todd Miller:com.
Todd Miller:please watch for future episodes of our podcast.
Todd Miller:We always have great guests.
Todd Miller:Don't forget to leave a review, please.
Todd Miller:till the next time we're together, keep on disrupting, keep on challenging,
Todd Miller:keep on looking for better ways of doing things and don't forget to
Todd Miller:do kind things for others, simple.
Todd Miller:Powerful ways you can change the world just by interacting with others.
Todd Miller:So God bless and take care.
Todd Miller:This is Isaiah industry signing off until the next episode
Todd Miller:of Construction Disruption.