Coming Soon to a Trailer Park Near You: Investment Bankers?

The past few years I've taken to scanning the business press much more frequently than the stuff packaged for general consumption.  Because of that habit I happen across stories that I otherwise wouldn't see, and it's a great way to pick out underlying trends in the economy.

This week I found just such a story on Bloomberg, where two themes I see in the broader economy come together in a nicely written piece with a cheeky pun in the title.  The story focuses on wealthy people looking to invest money in a stable asset with reliable returns, which is a common tale in the business press.  The two themes I find interesting that show up are only mentioned in passing, but provide the setting for the story that otherwise would not be told.

The first theme is the decline of the middle class in America.  It's something felt across the country, as prices rise for most everything people need (or have convinced themselves that they do), while wages stagnate or decline as jobs disappear.  It's generally not acknowledged in the corporate press in so many words, but there are some really clear lines in this piece that are refreshingly honest, like

"Weissman, a University of Michigan economics graduate, attributes his newfound calm to the supply-demand equation in the trailer park industry. With more of the U.S. middle class sliding into poverty and many towns banning new trailer parks, enterprising owners are getting rich renting the concrete pads and surrounding dirt on which residents park their homes."

Further down, we find this gem:

"The economics of mobile homes are particularly alluring to folks who’ve made their living in the markets. Many counties in the U.S. have banned or discouraged construction of new trailer parks because the inhabitants are poor, pay little in taxes and drain resources. Yet demand is higher than ever, new investors in the parks say, because so many people never got back on their feet after the recession."

and this:

"David Protiva, a former mortgage-backed-bond salesman at Kidder, Peabody & Co. and Donaldson, Lufkin & Jenrette Inc., now owns four trailer parks in Georgia. He’s noticed that until 2008, most people coming into his parks were moving up; they owned nothing before buying a trailer. Since 2009, half of his residents have come to him from conventional homes, moving down, he says."

The second theme this piece points out is that in a stagnant economy there is a general shortage of profitable investments, which drives the rentier class from their corner offices in Manhattan to the further fringes of the economy to keep up their incomes.  For a sector that's grown accustomed to low-risk yields of 8% to 20% or more on invested capital, the transition over the past decade to a zero-interest-rate regime from the central bank with falling yields in other investments has been challenging.  This theme has driven bubbles in real estate (residential and commercial), oil and gas drilling (complete with bundled and securitized drilling lease bonds for fields that don't break even), and now alternative energy (by the looks of it).  There's also been a general trend toward high-yield bonds (back in the 1980s they called them 'junk' bonds) and ever-riskier stock and derivatives bets to find returns in an economy where there just isn't that much money to be made compared to all the people looking to make money off of already having it.

The movement of investment bankers and other Wall St. types into areas like trailer parks, storage units, tax liens, and privatized probation signals that they're willing to compete with the loan sharks and bail bondsmen to keep up their standard of living.  As one interviewee in this week's story puts it, “I like to say I turned in my Rolex for a pinky ring,”

The general upshot for this theme is that at some point over the past decade or so, the US shifted from a growing economy (where the average investment makes money) to a stagnant economy (where the average investment breaks even, and decent yields can only be obtained in ever-riskier investments).  The next stage is likely to be a shift to a contracting economy, where the average investment loses money, and obtaining historical yields is likely to require extraordinary measures, like graft or corruption or operating outside the law.  When that next transition happens depends on many factors, but with energy prices high and availability declining, it is likely to be sooner than later.