The canary in the asset bubble is popping: $3.8 trillion bubble that you are probably not aware of.

The death of retail as we know it is real.  People are shifting their buying habits online in a fast and furious way.  The only retail outlets that seem to be thriving are dollar stores but they are thriving because many Americans are living paycheck to paycheck and online shopping is too expensive for some.  So it should come as no surprise that the way things were once done is being upended again by technology.  Giants like Amazon and Wal-Mart are cannibalizing entire industries.  Back in 2012 Amazon had less than 10 million Prime subscribers.  Today it is over 80 million.  So the big bubble that is now imploding is that in commercial real estate.  There is $3.8 trillion in commercial real estate loans outstanding and the bubble in this market couldn’t be peaking at a worse time.

The peaking CRE bubble

Keep in mind that a large portion of commercial real estate is driven by malls and retail locations.  Americans are still shopping but they are shopping online.  The old model is cracking hard and we are deep into bubble territory here.

Take a look at CRE values:

US-Commercial-Property-Index-GreenStreet-2017-05

Commercial real estate values are up more than 105% from their lows reached in 2009.  Current CRE values are surpassing peak values reached during the last real estate mania.  And as you can see from the chart above, it looks like we have reached a peak.

Then you have news like this:

sears

The above news was released this week.  Keep in mind that at one point Sears was a larger business than Wal-Mart.  And here it is slowly disappearing.  That is a big problem because commercial real estate can’t simply disappear overnight.  What are you going to do with giant mall space that is now not needed?

I’ve been in many malls over my lifetime and recently, there is this deep sense that something is changing and you can see it.  Empty store spaces.  Massive sales.  Deep discounts.  The issue is that many Americans in particular young Americans work in retail.  While the pay is low, it is better than nothing.

The two largest occupations in the US are retail and cashiers:

top-occupations-US-768x392

Source:  BLS

And both of these are under fire.  Then you have McDonald’s announcing that cashiers will be replaced with self-serve kiosks:

mcd

So what do you think all of this will mean for low wage workers that dominate the economy?  The above headline seems to sum it up however.  Wall Street is cheering this on but the vast majority of Americans that don’t own stock are getting cut to the core.  Welcome to the race to the bottom.  The CRE implosion is not going to be pretty.

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6 Comments on this post

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  1. welcome to the 3rd world said:

    collapse in retail has virtually nothin to do with amazon and everything to do with craigslist,ebay,flea markets etc,nobody buys new anymore,when your populous so poe and broke all they can afford is 2nd hand or used say welcome to the 3rd world amerika plus the poor quality and the cheap massively overpriced Chinese and Mexican crap,u almost have to buy 2 (3) just to get one that halfasss works yo

    June 27th, 2017 at 3:10 pm
  2. Ame said:

    Agree with 3rd world in that people would rather buy something built years ago that they can get parts for if they break down. A truck built thirty years ago is something that can be worked on to make run if you have a bit of know how and a few bucks. Contrast that to a new truck that breaks down…you need a computer to diagnose it and someone with a degree to fix it!

    We have a washing machine and dryer from 15 years ago. The dryer has been fixed twice and the washing machine is going to be worked on this weekend since the hot water stopped filling the tub. Simple fix and a $125 part and it’s good to go for years more. Why buy new with the quality of the old and the ability for many to years to fix them?

    June 29th, 2017 at 1:17 pm
  3. Matt Schilling said:

    We need a 21st Century Homesteading Act ASAP. We need to put a couple million people on productive land that can, while not making them rich, enable them to be productive members of society. Let’s put hundreds of thousands of people back in touch with the earth and its cycles and let them see more than one star in the night sky.

    July 3rd, 2017 at 9:56 am
  4. Royal Rife said:

    Great, the morons will still line up to eat toxic garbage served to them by robots.
    And if Amazon bought McDonalds you can have their drones drop your big macs a plastic fries right into your septic tank…..

    July 4th, 2017 at 9:45 am
  5. freeborn man said:

    The real reason that this outsourcing of our production base has been allowed to go on, and this situation of no employment opportunity allowed to continue on without a fix, is because it is giving justification for a completely socialized system. Just remember that socialism is simply age old slavery repackaged. You will still work six twelve hour days, you just wont be paid for doing it.

    July 7th, 2017 at 7:59 pm
  6. Laura said:

    I like to think the glass is half full. A few hundred years ago people didn’t work for others in big factories. You started your own business and hired a few people once you got big enough. But it wasn’t hundreds of people. You were an actual person back then. You weren’t a number or a cog in a wheel. Your job had importance.

    Of course there were jerk bosses just like today but there were good ones too. I see the economy cycling back to that system. Yeah, you’ve got to hustle to get your clients but that’s why they call it work. The advantages are awesome. You control your own time and can let jerk clients go once you’re established enough. It’s easier than ever to start your own business now as opposed to back then. We have free education now. Easier access to loans. People supported family owned businesses back then. Your reputation was everything. And your reputation today should mean something. There being a lot of smaller businesses means we can bring back family values. Working for big companies till 9 or 10 at night and on holidays and Sundays when you’ve got kids (or even without kids) is ridiculous.

    I’m not saying there weren’t problems with this system back a few hundred years ago and I’m not saying there won’t be problems going back to that system today but I see it as being much better than it is now. I’d have better control over my own life as an owner and as a worker I’d have more choices of work employers if there are tons of small businesses to choose from instead of a handful of big companies.

    We’re lucky we live in the US of A. We don’t have to sit and take a dependence on a handful of big businesses. We can fight back by creating our own / working for small businesses (not everyone wants to be an owner) and stop shopping at big box stores.

    don’t give away your power by complaining and focusing on the negative. Empower yourself and others by envisioning how this can work in your favor and beat them at their own game. Start your own movement like the one I mention above or one of your own vision. You have the ability, power and intelligence to do so. Most importantly, you deserve it.

    July 16th, 2017 at 12:51 pm

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