Dead Malls and the Future of the U.S. Economy

Dead Malls and the Future of the U.S. Economy

I recently stumbled across (and promptly binge-watched) a YouTube series by Dan Bell on dead malls.  These shopping complexes are in danger of failing due to high vacancy rates, low foot traffic and high crime rates.

Ever since I watched the Dan Bell series, I have been fascinated by the idea of dead malls.  I think I find them so mesmerizing because in the 1980s and 1990s malls were the physical embodiment of the apogee of the cult of consumerism in post World War II America.  So it is both frightening and captivating to watch the systematic decline of such a culturally important U.S. institution.

Of course it wasn’t always this way.  The concept of the mall, a collection of stores connected by pedestrian walkways and fully enclosed for protection against the weather, only developed gradually during the early to mid 20th century.  It wasn’t until 1956 that the first true fully enclosed, climate-controlled shopping mall opened – Southdale Center in a suburb of Minneapolis-St. Paul.  After this revelation, malls grew rapidly in popularity in the U.S. throughout the remainder of the 20th century.

In the 1980s and 1990s, malls were the place to be.  They took on a cultural significance that is difficult to convey to those who came of age after their greatness had already begun to fade.  In a time before social media or even the internet, malls were the hot hangout spot for teenagers and young adults looking to meet friends and have fun.  Adults loved malls too; in the age before e-commerce they were the best way – and often the only way – to experience almost unlimited shopping choice.

But nothing in this world lasts forever, including the dominance of American retail.  For the last two decades, the U.S. consumer has been relentlessly buffeted by regular financial crises, a perennially weak job market and excessive debt loads.  Given these economic realities, the rise of dead malls was inevitable.

It also didn’t help that retail space, often in the form of malls, was horribly overbuilt in the U.S. from the 1970s until the present.  It is estimated that the U.S. currently has approximately six times the retail square footage per capita of Western European countries like France and the United Kingdom.  American retail culture was bound to face a reckoning eventually and dead malls are just a symptom of that comeuppance.

But there were other powerful secular trends at work in the rise of dead malls as well.  For one, the Great Recession of 2008-2009 permanently changed shopping habits for a wide range of people.  Consumers who had been happy to splurge at the mall before the economic crisis now found themselves pinching pennies wherever they could.

The growth in internet shopping giants like Amazon, Overstock and Newegg also went hand-in-hand with more frugal consumers.  Shoppers can use the internet to compare prices quickly and easily across a range of products.  As a result, it has been said that the internet is the single greatest margin destroying invention in the history of mankind.  Dead malls are a haunting testament to the truthfulness of this statement.

But perhaps the most intriguing thing about the phenomenon of dead malls is the implication for our economic future.  In my opinion, dead malls signal the beginning of the end of rampant, unthinking consumerism.  For decades the unspoken rule that everybody followed was “more stuff is better”.

I think modern society has fully explored the limits of that philosophy.  Unrestrained consumerism is abhorrent, and all too often ends in hoarding, monetary destitution and spiritual impoverishment.  However, I don’t believe this means the end of shopping, or that we will all live as ascetic monks.

Instead, I believe a trend toward luxury minimalism is taking hold.  Luxury minimalism is a philosophy of buying few things, but making certain that what you do buy is of the highest quality.  One of the areas that should disproportionately benefit from this trend is quality antique and vintage goods.

Did you know that it is possible to purchase a stylish vintage Mid-Century fountain pen for less than $100?  Or that you can buy a 1960s era, solid 14K gold retro mechanical wristwatch for around $500?  If other cultures excite you, then fine, handmade antique Japanese lacquerware can be acquired for only a few hundred dollars or less.  There are almost limitless choices, and the best part is that these high quality heirlooms can double as investments as well.

Vintage U.S. Naval Aviator Insignia

Vintage U.S. Naval Aviator Insignia
Photo Credit: iconrelicsaz

Vintage U.S. Naval Aviator Insignia

Buy It Now Price: $85 (price as of 2017; item no longer available)

Pros:

-Here is a spectacular example of a vintage U.S. Naval aviator insignia from the World War II era.  Naval aviator insignia were awarded to pilots who had completed their training and were deemed qualified to fly a military aircraft.

-The Naval aviator pin has remained unchanged since it was first designed in 1917.  It consists of a pair of wings spreading from a central shield superimposed on a fouled (tangled) anchor, all rendered in gilt metal.  This same badge has been used to the present day to denote qualified pilots in the U.S. Navy, Marine Corp and Coast Guard.

-This vintage U.S. Naval aviator insignia is hallmarked “1/20 10K GonS”, which indicates it is made from solid sterling silver with a thick layer of 10 karat gold-filled material on top.

-This vintage U.S. Naval aviator insignia is marked “AMICO” on the reverse.  Otherwise known as the American Insignia Company, AMICO was a well-known and highly regarded manufacturer of vintage U.S. military insignia.

-Although it isn’t readily visible in the photo above, the silver colored clutches on the pin appear to be sterling silver Ballou clutches.  These clutches are scarce and rarely seen today.  They were first patented in 1943 and were only made for a few years afterwards.

-This vintage U.S. Naval aviator insignia is incredibly high quality, even by the exacting standards of World War II American military paraphernalia.  Vintage sterling silver AMICO pilot’s wings typically weigh a hefty 18 grams (0.578 troy ounces), compared to only 10 to 12 grams (0.322 to 0.386 troy ounces) for most wings from other contemporary manufacturers.

-Militaria is a burgeoning niche within the antiques industry today.  Demand is skyrocketing for high quality pieces like this insignia pin, so I believe that prices may go much higher in the future.

-The patina on this vintage U.S. Naval aviator insignia is even, undisturbed and original.  I have no doubt that this is a genuine World War II era pin from a coveted maker in superb condition.  I have seen similar insignia offered between $200 and $250.  In light of this assessment, the $85 asking price seems laughably low.

 

Cons:

-Even though this piece is made out of sterling silver, it has a fairly modest intrinsic value.  Although the seller did not explicitly state the weight of the piece, if we assume that the hallmarking is accurate it should weigh around 18 grams.  In this case, our vintage U.S. Naval aviator insignia contains about $15 of gold (at a spot price $1,300 per troy ounce) and just short of $9 of silver (at a spot price $17.25 per troy ounce) for a combined scrap value of around $24.  Therefore, the premium for this specimen is 254%, which is honesty not as high (expensive) as I thought it would be.  Of course, no one would melt such a beautiful and historic piece, so this is really a rather academic exercise.

-I would have really loved it if the seller had included a close-up photo of the silver Ballou clutches.  This could have helped confirm the World War II dating of this vintage U.S. Naval aviator insignia beyond any possible doubt.  However, I honestly believe there is little question of the piece’s authenticity anyway.

Ethereum, Alternative Investments and Friction Costs

Ethereum, Alternative Investments and Friction Costs

In economics there is a concept known as “friction cost”.  Friction costs are fees, commissions, markups, taxes, surcharges or any other expense that may reduce the attractiveness of a transaction.  Economists are obsessed with friction costs because they theoretically make economies less efficient.

But economists aren’t the only ones who should pay attention to this key concept.  Investors should be concerned with friction costs, too.  Now this might seem like a strange assertion because modern capital markets have turned reducing friction costs into a veritable crusade over the last few decades.

And they’ve been largely successful, too.  Stocks trades are often ridiculously cheap these days.  Anybody can open an online brokerage account where it costs less than $10 for an equity trade.  However, while friction costs for paper assets – stocks, bonds, option and futures – are about as low as they can possibly go, friction costs are often still quite substantial for many alternative investments.

For example, early in 2017 I briefly looked into investing a small amount of money in an up and coming crypto-currency ecosystem called Ethereum.  Now there are a couple different ways to acquire Ether – the technical name of the Ethereum platform’s currency.  You can either buy it from an online exchange or mine it.

Mining Ethereum tokens, while intriguing, didn’t seem very viable for my situation.  It requires a computer with a powerful GPU (graphics processing unit) that has a micro-architecture amenable to running complex mining calculations.  Not all modern GPUs, even very powerful ones, are efficient at these calculations.  But all GPUs that are good at Ethereum mining are relatively expensive – yet more friction costs.

Even if you do happen to have an appropriate GPU, any computer you dedicate to Ethereum mining needs to effectively run 24 hours a day, 7 days a week in order to be worthwhile.  And any computer mining Ethereum will consume large amounts of electricity.  If the machine is running 24/7, which it should be, you will end up with a large power bill at the end of the month.  You just have to hope that the value of the Ethereum you’ve mined is greater than the value of the electricity you’ve used.

Then there is the decision of whether you want to mine Ethereum independently or join a mining pool.  A mining pool makes the process somewhat less technically challenging and also makes the pay-outs more predictable.  But a mining pool also increases frictions costs; they generally charge a fee totaling between 1% and 4% of the amount mined.  The alternative, mining Ethereum independently, not only makes payouts extremely unpredictable, but also turns you into your own technical support desk if something goes wrong.

As you can see, friction costs come in all different shapes and sizes.  Sometimes they are very straightforward, as in the case of fees and commissions.  But sometimes friction costs do not come in the form of money.  Instead, they show up in the guise of time or technical expertise.  This is often the case with alternative investments like crypto-currencies (or other alternative investments for that matter).  In light of these friction costs, I opted to pass on Ethereum mining.

The alternative to Ethereum mining is purchasing the crypto-currency outright.  Surely the friction costs of buying Ether must be lower than with mining it!  Sadly, this is not necessarily the case.

In order to buy Ethereum you must open an account with an online crypto-currency exchange like Coinbase.  But there are a plethora of fees associated with these accounts.  First there is a commission for purchasing the crypto-currency itself.  This can vary from 0.2% all the way up to 3%.  But there is also often a surcharge on deposits to fund your account – anywhere from 0% to 5%, depending on the funding method used.  Withdrawals also face similar fees.  Some crypto-currency exchanges even charge a fee for an in-kind withdrawal, when you withdraw your own Ethereum without selling it first!

Now personally, I don’t like the idea of holding crypto-currencies at online exchanges for any length of time.  Any funds, including crypto-currencies, held “on deposit” at an online crypto-currency exchange is technically the property of that online exchange.  Depositors are merely unsecured creditors in the event of a bankruptcy.

This might seem like legal hair-splitting, but I assure you it is extremely relevant for alternative asset investors.  In fact, in February 2017, the world’s leading Bitcoin exchange at the time, Mt. Gox, which handled over 70% of all Bitcoin transactions, suddenly and unexpectedly suspended trading and declared bankruptcy.  A large amount of their Bitcoin inventory had been stolen, leaving depositors with little legal recourse to recover their funds.

I considered avoiding this problem by purchasing Ethereum at an online exchange and then moving it to a segregated “wallet”.  A wallet is just software that is meant to store your crypto-currency in a secure, offline way.  Sounds great, right?

But first you have to choose one.  There are dozens of wallets out there and even though most of them are free they all have different features.  I discovered that when it comes to crypto-currencies, choosing the right wallet is of paramount importance.  You want to make certain that the wallet you choose stores the private key for your Ethereum locally, on your own computer, and not on an external server.  However, your friction costs don’t stop once you’ve chosen a wallet for your Ethereum.

Instead, you now have the conundrum of where to store the wallet.  If you keep your wallet on your local computer hard drive and it crashes, becomes corrupted, catches a virus or otherwise malfunctions, then there is a good chance your Ethereum is gone forever.  So I thought about transferring my wallet to a USB thumb drive.  Then I could unplug it from my computer and stash it somewhere safe in my house.

But even that raised more questions (and associated friction costs).  I have a couple old USB thumb drives floating around, but do I trust any of them to store hundreds or thousands of dollars worth of crypto-currencies?  Probably not.  So I really should go buy a new one.  In fact, it would probably be wise to invest in a dedicated, high-security crypto-currency hardware wallet (like the Ledger Nano S – Cryptocurrency hardware wallet), where the wallet and flash drive come as a single, integrated unit.

But where would I put this new flash drive with my Ethereum investment?  If the thumb drive with my Ethereum’s private key is lost, stolen or destroyed, there is usually no way to recover the crypto-currency that was stored on it.  A fire, flood or burglary would be devastating under these circumstances.  A good home burglary safe would be a perfect solution for this situation, but they aren’t cheap.

In the end, because of all of these friction costs, I didn’t follow through with my plans to purchase Ethereum.  Much to my chagrin, within a few months the price of Ethereum skyrocketed, moving from around $10 per Ether in January 2017 to a peak of over $400 in June 2017.  I couldn’t believe how bad my luck was, missing out on this tremendous appreciation.

But there are valuable lessons to be learned from my experience.  First, friction costs can come in a variety of forms – everything from fees, to wide bid-ask spreads, to specialized knowledge.  And, as unpleasant as friction costs can be, they aren’t universally negative.  For example, illiquidity has undoubtedly been a powerful factor in keeping the price of many alternative investments, including fine art and antiques, relatively reasonable.

I think the moral of the story here is that alternative investments have a steep learning curve in addition to other friction costs.  But you shouldn’t let that deter you.  Instead, start learning what you need to know now.  The better educated you are about alternative investments like bullion, antiques, gemstones, fine art and yes, crypto-currencies, the greater the chances you will find a gem in the rough.  More importantly, knowledge will give you the confidence needed to add these often overlooked alternative assets to your investment portfolio now, before prices rise out of reach.

Townhouse and Condo Home Security

Townhouse and Condo Home Security

Layered home security is a concept that I already dealt with in another article.  However, I thought I would take a slightly different perspective on physical security this time.  While the prior article approached home security from the viewpoint of the owner of a detached single family house, here I will discuss townhouse, apartment and condo home security.

Layered home security is the philosophy of implementing many small, overlapping security measures to harden your residence against burglary or home invasion.  This tends to be more effective than spending a large amount of money on a single monumental security precaution.  But if you live in a condo or townhouse, the approach you take to layered home security has to be different than those applied to traditional, stand-alone houses.

Under normal circumstances, the first zone in a layered home security plan is the yard.  This represents an issue for multi-family residences because this deterrence zone is either truncated or non-existent.  However, this drawback is sometimes not much of a negative, and can be easily overcome most of the time.

First, multi-family units often have independent security measures such as limited access common areas and security cameras.  These would normally be part of a good layered home security plan anyway.  The fact that the building management or condo association maintains them is a clear win for condo dwellers.

However, you can always augment these preexisting security assets with your own.  An example might be a sign like “protected by ABC security systems” clearly visible in a window or in a small flowerbed (if you live near the ground floor).  The beauty of this strategy is that you don’t actually have to pay to have your condo or townhouse monitored by a security company, although that certainly wouldn’t hurt.  A security system sign might just be a bluff, but potential criminals don’t know that!

The second zone for layered home security is the “shell” of the house itself.  This can vary considerably depending on whether you live in a multi-unit high-rise condo or a semi-detached townhouse.  If you are more than two floors off the ground in a multi-unit building, then you are in luck.  The only opening you realistically have to reinforce is your door.

Yes, you may have heard horror stories of highly trained criminal gangs of ex-Army Ranger paratroopers rappelling into luxury high rise condos to conduct Mission Impossible style jewelry heists.  But this is as rare as unicorns.  It simply doesn’t happen with any regularity in the real world.  So high rise condo owners can give a sigh of relief.

If you live in a townhouse, row house or “garden level” condo, on the other hand, your security precautions need to be more extensive.  Shatter-resistant security film is a relatively cheap and easy way to upgrade the defensive characteristics of your existing windows.  Placing bars over your windows is another, even more secure enhancement, although it comes at the price of aesthetics.

The security of your front door, however, is paramount for condo and townhouse owners.  Specially fabricated security doors made of metal bars and Plexiglas inserts can be installed over existing doors to increase burglary-resistance.  Although a more expensive option, an existing poor quality exterior door can be entirely replaced with a metal or solid hardwood specimen.

Once you have a good exterior door, it is necessary to reinforce the door jamb and frame.  In many burglaries, the criminal gains access by simply kicking in the front door.  Even robust deadbolts will simply tear away from either the door frame or door itself under extreme conditions.  Therefore, installing a heavy duty door jamb reinforcement kit and strike plate is highly recommended.

The inside of the home is the third area of a layered security strategy.  A burglar alarm is a great addition to this zone as it will give any intruder a very limited timeframe in which to plunder.  Security cameras might also be appropriate in the entryway, depending on your personal level of paranoia.  Large dogs are often great anti-burglar devices, but they typically do not get along well in the confined spaces of condos and townhouses.

While the inside of the home can be thought of as the final zone in a layered home security layout, it is possible to create another, final bastion, usually in a bedroom.  This is commonly known as a safe room or panic room.  A solid wood door enhanced with a high quality deadbolt lock would be a good starting point for this kind of room.  This is an important distinction as many interior doors are flimsy, hollow core construction.

If you are so inclined, it would even be possible to install a full-fledged vault door in a large walk-in closet for a higher security alternative.  In the end, cost is the only realistic limit to the security level you could achieve.  A well-fortified safe room grants peace of mind by giving family members a place to retreat to in case of a violent home invasion.

If you are interested in protecting valuables, buying a burglary or burglary-fire safe is also a wise idea.  A high quality jewelry or security safe not only provides a significant level of burglary resistance, but is also convenient to use.  A safe is a great companion security feature to install in a safe room too.

One little known benefit of living in a multi-unit condo or apartment complex is that security minded residents can typically forego fire protection when shopping for a safe.  This can result in a significant cost savings.  It should be noted, however, that a burglary safe must always be properly bolted to the floor in order to be effective.

With a little creativity, it is possible to successfully apply the concepts of layered home security to multi-family housing situations.  This can turn your condo, townhouse or apartment into a hardened, burglar-resistant home.  A few simple security fixes today can help you avert the personal disaster of a burglary later.