December 5, 2017

Senate Passes Tax Code Revision Bill

Posted in Integrale Advisors LLC, Keith Knutsson tagged at 2:29 am by Keith Knutsson

The Senate passed sweeping revisions to the U.S. tax code on Saturday after Republicans secured enough votes to pass the measure. The revision bill included $1.4 trillion in tax cuts, lowering the corporate rate to 20% from 35%, restructures international business tax rules and temporarily lowers individual taxes.

The bill passed 51-49, with all but one Republican voting for it and all Democrats voting against. The only Republican to vote against the bill, Senator Bob Corker of Tennessee, expressed his opposition before the vote, stating worries it would expand budget deficits.

The bill’s ultimate passage would mean a great deal to republicans, marking a legislative victory for President Donald Trump and the GOP. President Trump has made a tax overhaul one of his main economic policy goals, focusing on rewriting business taxes in an attempt to make the U.S. more competitive internationally. The bill could also give republicans a boost in the upcoming 2018 midterm elections, which could ultimately influence the presidential campaign in 2020.

The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas. The bills overlap in many ways, and lawmakers expressed optimism about getting a final deal done by the new year.

Senate Republicans called the bill an “economic booster shot”, arguing the bill would promote faster sustained growth and higher wages. However, Congress’s own nonpartisan economic analysis found that the economic benefits would be modest and would fade over time.

The Joint Committee on Taxation estimated that the tax cuts wouldn’t pay for themselves, as Republicans originally promised. The analysis estimated the tax cuts would increase deficits by $1 trillion over a decade, even after factoring in economic growth.

Investors, for now, are more excited about the prospect of lower corporate taxes than about the risks associated with larger government deficits. The Dow Jones Industrial Average rose 673.60 points for the week, or 2.9%, to 24231.59. Yields on 10-year Treasury notes, which might be expected to rise if bond investors were worried about deficits, remain around 2.5%.

“This bill, when ultimately passed will provide much needed tax relief for lower and middle-class families, while spurring the creation of favorable jobs and stronger economic growth in the U.S.” said Keith Knutsson of Integrale Advisors.

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October 9, 2017

Puerto Rico Seeks Critical Hurricane Relief

Posted in Integrale Advisors LLC, Keith Knutsson tagged , at 2:39 am by Keith Knutsson

According to Raúl Maldonado-Gautier, the Treasury Secretary of Puerto Rico, the U.S. territory will need billions of dollars in aid from Washington as it struggles to regain stability in the wake of Hurricane Maria. The Treasury Secretary called upon members of the U.S. Congress to approve additional funding. This would provide necessary relief to jump start reconstruction efforts and bring a dying economy back to life. Hurricane Maria destroyed Puerto Rico’s electric grid, knocked out its communication network, and left as many as 3.4 million residents without clean drinking water.

With an estimated $74 billion in bond debts, the island filed to start a bankruptcy-like process this year in an attempt to cut its liabilities. Mr. Maldonado-Gautier stated that the devastation has interrupted the government’s ability to collect taxes, once again raising questions about the island’s financial future.

The Treasury Secretary also said it was too soon to know the full financial cost from Maria, a category four hurricane that was the strongest to make landfall in the Caribbean in nearly a century. The size and shape of a long-term aid package from Capitol Hill could help determine whether the island’s economy can be salvaged.

Earlier this week, Rick Scott, the governor of Florida, declared a state of emergency to unlock funds to help with an expected influx of Puerto Rican evacuees. The state of Florida has a goal to make sure that any families from Puerto Rico displaced by natural disaster that come to Florida are welcomed and offered every available resource. Political attention in Washington, where Puerto Rico has a non-voting representative in Congress, has so far been focused on the immediate relief effort, whom many believed should have been passed long ago.

Puerto Rican governor Ricardo Rosselló, said on Monday that some progress had been made to restore water and sewerage and to improve distribution of fuel across the island. Federal and local authorities were working to keep 50 hospitals operational and a US Navy hospital ship “Comfort” is scheduled to arrive next week.

“Puerto Rico’s tax relationship with the US could complicate things for Congress. However, a relief bill should be passed with no hesitation as it is crucial to get help to those individuals and families who need it the most” said Keith Knutsson of Integrale Advisors.

September 16, 2017

Automation: Significant Global Impact in an Interconnected World

Posted in Integrale Advisors LLC, Keith Knutsson tagged at 1:41 am by Keith Knutsson

With a rapidly developing world in automation and advanced manufacturing, the perception of scope in regards to the automation process in the manufacturing sector can be limited. One of the leading consulting firms, McKinsey & Company, studied manufacturing work in 46 countries in both the developed and developing worlds, covering about 80 percent of the global workforce.

The findings suggested that, even though manufacturing is one of the most highly automated industries globally, there is still remarkable automation potential within manufacturing sites, as well as in related functional areas such as supply chain and procurement.

Keith Knutsson of Integrale Advisors commented, “usually the concerns behind automation are limited to the scopes of everyday life. There is an even more tremendous change approaching in the developing world.”

Technical automation potential doesn’t vary much globally; the world’s prevalent supply of automatable manufacturing hours and automatable labor occur in the third world, with 81 percent and 49 percent respectively. This indicates that a foreseen upswing in automation in the third world would have extraordinary global impact.

Indian automotive suppliers have found that through the introduction of minimal automation on its production line, a process that reduced staffing levels from 17 to 8, their costs have become equivalent to those for a Japanese company running the same type of line with a higher degree of automation and a staffing level of two.

The question remains as to which machines are acceptable given the setting – especially ones that will interact with humans. The markets for which automation takes hold reveal a connection among labor supply and demand, implementation costs, feasibility and marginal value provided. Potential for the implementation of automation depends on the levels of those factors and their respective trade-offs.

August 21, 2017

Eurozone Outlook Improves, Helped by Dutch and Italian Economies

Posted in Integrale Advisors LLC, Keith Knutsson tagged , at 1:10 am by Keith Knutsson

The eurozone’s recovery is happening quicker than predicted in the three months to June as a pickup that started in Germany and Spain has spread to other parts of the Euro area, fueling a vital comeback of the global economy.

On Wednesday, the EU’s statistics agency raised its measure of eurozone economic growth during the second quarter to 2.5% annually from a previous estimate of 2.3%, bringing it closer to that of the U.S., estimated to be 2.6%. This is an opportune moment for the Eurozone economy, especially since the U.S. is growing at a slower pace than expected as well as the setback already seen in the Chinese economy.

On the other hand, aiding the Eurozone rally is the Dutch economy, surging during the last fiscal period as exports jumped. In addition, Italy recorded its strongest six months since the second half of 2010.

“The eurozone recovery continues, and the economy seems to be expanding at a steady rate,” said Keith Knutsson of Integrale Advisors.

The Euro bloc’s strength during the first fiscal half of 2017 was a surprise to most economists, who had expected growth to slow in response to rising commodity prices and increased political uncertainty as citizens of France, Germany, and the Netherlands chose new governments. Nevertheless, the rise in energy prices didn’t last long and elections in the Netherlands and France displayed wins for pro-euro centrists, reducing the threat of a breakup of the Eurozone and easing the minds of investors.

Netherlands

The Netherlands, and the efforts of its newly formed government resulted in an economic surge in the second quarter. According to the Dutch statistics agency, GDP was 1.5% higher than in the past three months, averaging 3.8% over the time period. This was largely the result of a jump in exports. On Wednesday, the Netherlands Bureau for Economic Policy Analysis announced it now expects the economy to grow by more than 3% in 2017 as a whole, the first year in which it will have done so since the financial crisis of 2008.

Italy

The eurozone’s economic acceleration has also been supported by stronger growth in Italy. The peninsular nation recorded a third straight quarter in which GDP rose by 0.4%, signaling the fastest rate of expansion since the first three months of 2011. Nevertheless, Italy’s economy is still 6.5% smaller than it was before the financial crisis.

Overview

With countries such as Italy and the Netherlands strengthening their economic positions, the primary drivers of growth remain Germany and Spain. The strength of the eurozone has prompted economists to raise their forecasts. According to Consensus Economic, the average growth rate in the Eurozone for this year is projected to be 2%, up from the 1.4% expected in December. In addition, there are signs that the eurozone’s prosperity will aid other parts of Europe, closely connected by trade and financial interdependence.

August 19, 2017

REIT Sector Performance

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 2:09 am by Keith Knutsson

On September 19th, 2016, the S&P Dow Jones indices put the shares of real-estate investment trusts into their own stock-market sector, thus creating the S&P 500 REIT. 

Since the sector began trading it has returned, with dividends reinvested, a total of 1.9%. The S&P 500 has returned 15.4% over the same period. In the year prior to the sector’s creation, S&P REIT’s beat the broader index by 5.9 percentage points.

The drawback of REIT’s is that they’re focused domestically at a time where economies outside the U.S., such as emerging markets have been picking up. In addition, the rising rate environment makes their dividend yields less attractive and an influx of new properties threaten to cut into firms’ ability to raise rent prices.

“The real estate industry had been pursuing its own market sector for years, and performance had been so good that the index making agreed to split them off from banks” said Keith Knutsson of Integrale Advisors.

The reluctance of real estate investment trusts to develop large projects has kept supply of commercial real estate under control, extending the sector’s recovery. During the recession of 2008, excessive development activity weakened REITs’ credit profiles, but they have been picking up since, with large growth spurred in 2014.

Within the REIT segments, office and retail REITs have seen much slower growth in construction compared with those that focus on residential and warehouse development. Project volumes from office REITs have been stifled due to slow employment growth in businesses that take up office leases.

Furthermore, there has been significantly more development in the multifamily and industrial real-estate sectors. In the residential segment, analysts are predicting that supply growth is currently exceeding and will continue to exceed demand in certain parts of the country.

June 29, 2017

The Capital Continues to Flow

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 1:42 am by Keith Knutsson

The world economy has been surprising many macro investors in the real estate market. First quarter reports begin to reveal political drama is impacting markets closely resembled in Q3 and Q4 of 2016. The outcomes of the Dutch and United States elections were surprises that have positively impacted global capital markets with renewed animal spirits to start of the fiscal year.

Real estate has continued to thrive with transactional volumes of $136 billion in the first quarter, 16% better than the Q1 2007 average. However, these numbers are slightly down from the performance of the Q1 of 2016. A decline in activity in the Americas has been offset by increases in Asia-Pacific and Europe, Middle-East, and Africa (EMEA).

Unpredictability still surrounds the long-term effects of BREXIT, nevertheless investors have been opportunistic enough bringing the United Kingdom’s transactional volumes to similar levels seen in 2015, in British Pounds. Despite early conclusions drawn about BREXIT, London has regained its rank as the most traded city, reclaiming its number one spot from two years ago. Foreign investors sought opportunity in British capital, recording the biggest cross-border transaction of the first quarter to date. The prominent ‘Cheesegrater’ building in London was a $1.3 billion office deal, ranking among the top ten transactions ever recorded. Steady demand for German portfolios also contributed to record high activity. Other notable performers in the European Union (EU) were the Czech Republic, Spain, Netherlands, and France all contributing to surpassing last year’s level. These countries contributed to a year-over-year (y-o-y) growth in volume at $53 billion. Keith Knutsson expounds upon this growth, claiming “the effects of the decade-old financial crises have finally settled and the European Central Bank’s loose monetary policy is taking effect, encouraging households and companies to borrow money and spend more.”

In the Asia-Pacific realm, Singapore and China proved to be superior in activity compared to the declines observed in Hong Kong, South Korea, and Australia. Japan, after being surpassed last year as the top market performer for its region, achieved its best quarter since 2015. Japan attained quarter-over-quarter 38% above its Q1 2016. This has been attributed to a large influx in its logistic and office sectors and is expected to continue into 2018, as the office sector continues to dominate for its 17th consecutive quarter.

The Americas suffered a 12% decline in transactional volumes, being the biggest shock to macro investors. Mexico’s volumes reached nearly $1 billion in volume while Brazil experienced its busiest quarter in two years. Vancouver, Canada set the pace in Canadian markets with major transactions doubling its national volume.

To help quantify the market share for transactional volumes of Q1 2017 locations, there are ten major players considered around the world:

USA – 46% UK – 14% Germany – 10% Japan – 10% Canada – 5%
China – 4% France – 3% Spain – 3% Sweden – 3% Hong Kong – 3%

Demand for real estate is set to stay strong throughout the rest of this fiscal year. According to Jones Lang LaSalle (JLL), an investment management company specializing in real estate, claims “sustained compression of prime yields may be coming to an end.” In most major markets these yields remain unchanged, despite double digit drops in Sydney, Milan, and Frankfurt. Their recommendation to investors is to stay focused on income growth over capital appreciation, rather than the anticipation of rising interest rates.

The largest portfolios to date are industrial and hotel, each with 11% growth. Industrial looks promising in growth with a large European portfolio planned to close in Q3 or Q4 of this year. Looking forward, political agendas that shape public policy will be more predictable as new-elects settle into their positions.

June 24, 2017

Cleaner energy, smarter solutions, and responsible investment

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate, Uncategorized tagged , , at 2:33 am by Keith Knutsson

“Renewable energy is starting to play a major role in decarbonizing our economy” said Keith Knutsson of Integrale Advisors.

Green Investment is gaining traction as shareholders pressure companies to move away from traditional fossil fuel industries and into companies aiming to reduce the global environmental impact. In most regions of the world, renewable energy is considered to be more cost effective than traditional coal. Solar prices have dropped by more than 60% since 2009 and the trend is expected to continue, opening the industry to a broader consumer base. The cost of large scale solar installation will drop by a further 25% by 2025, according to the International Energy Agency.

Renewable energy produces lower emissions than traditional energy sources and can help organizations achieve their environmental and emissions targets. If a company is willing to go in the direction of clean energy, there is typically additional financial support provided by local and state governments.  Some of the most popular forms of renewable energy include solar, wind, biomass, and geothermal heat. Solar energy is the most popular due to its low installation costs, low maintenance, and good return on investment. Here are some things to look for when considering renewable energy sources:

Suitability

When installing solar panels, one must assess the condition of the roof, structural conditions, site alignment, and electrical configuration. For wind turbines, weather conditions at the site, zoning requirements, and the availability of land for development must be considered.

Property Rights

Properties in commercial business districts have building tenancy restrictions and lease agreements, sometimes restricting structural or cosmetic change. Furthermore, tenants who wish to install onsite renewable energy may not be able to do this due to their current lease arrangements with their landlords.

Financing

There is currently a multitude of financing options available for renewable energy projects. By switching to renewable energy, a company may benefit from a range of tax incentives, grants, and positive public relations.

June 12, 2017

Integrale Advisors’ Keith Knutsson Looks at Who are the Disruptors?

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 1:51 am by Keith Knutsson

In an age when consumers go online to order groceries, download music and book plane tickets, it’s no surprise they do the same at the start of their house hunt.

That’s the route Julia, 30, and her husband took when planning their move from Atlanta to Manhattan last summer. Knowing they wanted a two to three-bedroom home with a doorman, washer/dryer and gym in the building, they plugged their needs into several real estate search engines and explored from afar. Once they got a feel for what was available and their move-out date became more of a reality, they contacted a real estate agent.

  “Because we had not found the right fit, we asked him to step in and show us some things we may not have seen, or that were coming on the market soon and we wouldn’t have seen online,” Julia said.

This is not news to agents, who say clients often do extensive homework online before seeing physical properties. “You have a much more well-informed buyer,” said KJ Kohlmyer, an agent with Zephyr Real Estate in San Francisco and member of the National Association of Realtors®. “People do a lot of research.” In fact, 89 percent of prospective homebuyers use a mobile search engine at the beginning of their research, and throughout the process, according to a National Association of Realtors® study.

Online house hunting is just one of the myriad forces shaping today’s housing market. Technological advances have encouraged the growth of apps and websites that equip consumers with more information. And social and economic changes are driving a desire for urban living, walkability and housing that accommodates a quick commute to work.

 Though today’s house hunters are well-informed, a real estate professional can help them navigate the process more easily than they would on their own, Kohlmyer said. “A good agent can bring everything to the table,” he said. “There can be Byzantine-like local aspects that are not widely known.”

 Today’s homebuyers value “experiences over things,” said Jonathan Miller, president and chief executive of Miller Samuel, a real estate appraiser and consulting firm. “They are in love with the new urbanism trend that has been in place since the financial crisis began. Urban living, walkability and close-knit communities define the experience many in this generation aspire to be part of.”

 Homebuyers today are seeking both urban conveniences and a sense of community—but price pressures and a desire for more living space are motivating them to look outside cities for this holistic living experience. Home prices in the Boston metro area have increased from $389,000 to $421,000 in two years. It’s a similar story in Denver, where prices jumped from $310,000 to $384,000.

 “Beginning in 2015, we began to observe a flight to the suburbs in urban markets as this generation grew impatient with falling affordability,” Miller said. “Renters are becoming first-time buyers, and trade-up buyers are being drawn to the suburbs.”

 These complex dynamics are driving changes to suburban enclaves that were once entirely dominated by automobiles and set apart from downtown areas and the workplace. Many suburbs are reducing auto dependence by introducing retail and office spaces into residential neighborhoods; rerouting traffic patterns; constructing sidewalks and trails; and incorporating more public transit options.

 Suburbs are increasingly offering conveniences and the sense of community that goes with having retail outlets and restaurants nearby. A National Association of Realtors® survey found that 58 percent of respondents favor walkable, mixed-use neighborhoods over those that require more driving between home, work and recreation.

 New, multi-use, pedestrian-friendly communities are popping up in places like Waverly in Charlotte, N.C., which offers 400 apartments and 150 single-family and townhomes anchored by a 40,000 square-foot grocery store and a 250,000 square-foot retail complex.

 Retrofitted older suburbs are also being transformed. Mashpee Commons in Massachusetts is a mixed-use, walkable community that was built on the site of a former shopping center.

 Sonia, 31, and her husband decided to buy a home outside New York City last year. Since they both worked in Manhattan, they were looking for areas that were easily accessible, and a town that was walkable. They settled in picturesque Pound Ridge, minutes from Stamford, CT.

 “We were looking for towns that had an upstate feel but were easily accessible to New York City,” she said.

It’s clear that financial necessity and love of urban conveniences are driving millennials to the suburbs. “This generation is redefining the traditional suburban housing market,” Miller said. “And they are just getting started. Pent-up demand will likely be unleashed on the suburbs over the coming years.”

May 23, 2017

The Gig Economy is Changing the Corporate Landscape

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , at 2:14 am by Keith Knutsson

According to a survey, 85% of people are dissatisfied with their jobs (Cushman and Wakefield, 2017). “Flexibility is the driving force today for choosing a dream workplace” said Keith Knutsson of Integrale Advisors. Free communication channels and globalized networks, have allowed for the fast growing “Gig Economy,” which consists of 20-30% of the working population worldwide.

The term “Gig workers” refers to consultants, contractors, or temp workers. The following professions are changing the corporate landscape. Nowadays, companies can easily hire non-permanent employees (temps) on an as needed basis. These “independent workers” are enjoying a balance of freedom, flexibility, and work life. However, there are some consequences. Gig workers lack healthcare benefits and job security.  Nevertheless, it is predicted that 40% of the global workforce will be independent contractors and ‘solopreneurs’ by 2020.

The impact of the gig economy will have a direct effect on workplace of the future. Globalization of work, global trade, and technology shifts have contributed to the rising gig economy.

Reasons for workers to choose independent work:

  • Ability to turn down projects if uninterested.
  • Freedom to choose type of work.
  • Flexibility; when and where to work.
  • Versatility; working on multiple projects for different clients.

Reasons for companies to hire independent workers:

  • Lower office space costs.
  • Reduced cost of healthcare and benefits.
  • Ability to bring in skilled workers/expertise when needed.
  • Scalability; ability to hire workers when necessary.

Analyzing the effect on the corporate environment: 

Firms are redesigning their offices to provide fewer private offices and cubicles, and more open and collaborative space. There are two goals: 1) provide workplaces that facilitate collaboration and 2) decrease the firm’s overall rent expenses by providing less physical space per worker.

Companies have leased several million square feet of space in the past few years and that trend is expected to continue with the growth of the “gig” economy. This economy also impacts traditional corporate culture and the engagement of employees. When all employees are engaged, they are more likely to commit themselves to company goals and achieve higher levels of productions.

According to analysis by Cushman and Wakefield, “65% of today’s school students will be doing jobs that don’t exist yet.” In addition to millennials rejecting traditional employment and choosing to work independently, artificial intelligence and robotics will also be more prevalent in the future. Businesses that will be successful in the future will be those who encourage adapt well to change.

May 22, 2017

US retreat from global financial system

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , at 3:47 am by Keith Knutsson

Borrowers now have access to the savings of the entire world if they can show lenders that they can make effective use of their money. It should also mean that lenders can search, on a global level for the opportunities that give them the best return for the risk with which they are most comfortable. The following should benefit both lenders and borrowers.

For borrowers, the cost of a capital loan should be lower than that on offer in smaller domestic markets. On the other hand, creditors’ returns should be far more attractive since they have more options for where to put their money to work. Since the global financial crises, there has been some negativity in the air. This negativity has greatly increased in recent months. Some regulators and financiers moved away from embracing globalization, further claiming that it led to the crisis. However, there is potential for a turnaround; especially if less developed nations and financial markets can improve the way they allocate capital.

Leading up to the crisis, capital inflows and outflows moved in obstructive ways. It transitioned from higher growth emerging markets to slower growth developed markets. Much of these flows went into US Treasuries to strengthen reserves in the aftermath of the 1997-1998 crises. Those capital flows to the US and to the dollar, the world’s reserve currency, meant that Americans could pay for larger properties with money that was cheaper than it once was. European banks continued to borrow those dollars in wholesale markets rather than relying on deposits to fund their own activities. This resulted in what international bankers are calling “the transatlantic banking glut”.

Globalization, all in all, meant poor capital allocation of debt and a huge accumulation of unsustainable debt. This resulted in a rolling crises as investors sought high returns in short-term securities, whether in emerging markets, the US, or Europe.

Central banks in developed nations responded to the crises by implementing easy monetary policies. Thus, triggering an artificial rise of asset prices, which led to an increase in capital outflows into emerging markets as yields were driven down at home. “The Fed should remember that when it makes monetary policy it should take into consideration the impact on the rest of the world,” stated Gao Xiqing, the former head of the Chinese sovereign wealth fund. A decline in globalization would result in a retreat from the dollar and from the US-centralized global financial system. The U.S. had advocated for policies regarding this that would in effect extend US control beyond its shores, especially as the new administration is attempting to limit terror financing and money laundering. The rules have become so burdensome for foreign banks that some have closed their US branches.

There is no better depiction of US policies putting a strain on the global economy than in recent Federal Reserve Board actions regarding “swap lines.” A swap line is another term for a temporary reciprocal currency arrangement between central banks. The central banks of two nations agree to keep a supply of each country’s currency available to trade to the other central bank at the going exchange rate. The Fed maintains lines with Japan, the Eurozone, the UK, Switzerland and Canada.

As the US steps back, we see an emergence of other developed nations are filling the role. China, the economic powerhouse, is taking a greater role on the global financial stage. The rest of the world is trying to circumvent the uncertainty of central bankers, US regulators, and politicians.

Although large companies will always have access to global markets, cross-border investment has become increasingly more difficult due to protectionist measures. As a result, this is expected to produce a smaller demand for capital intensive goods and services. If companies are forced to look domestically for funding, that could be a good thing if governments are more effective in making sure capital is properly allocated. However, there is currently little evidence this will be the case.

Submitted by Keith Knutsson

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