The Poetry of The Investing Universe Descends on NYC

It would be so nice if something would make sense for a change - Alice

Poetry of the investing universe- that's what I call the phenomenon whereby universally held beliefs fall apart after a trend based on those beliefs has played out. A prime example of this was the sudden discovery, after the dot com bubble burst, that Internet traffic wasn't actually doubling every month and that much of the new traffic being generated was in part a result of all the new sites being started by venture capital fueled companies. Also in this vein: the oft-cited
Harvard Joint Center for Housing Studies (possibly named for what they smoke while they make this stuff up) figures on household formation, which underpinned so many dreams of avarice driving the U.S. residential housing bubble. Don't worry though, the Harvard folks were still bullish when they put out their last report, though they did seem to admit that the bubble itself might have had something to do with the numbers: "After averaging 1.15 million per year in 1995–2000, household growth notched up to 1.37 million annually in 2000–2006. While some of this increase may be due to the unusually favorable homebuying
conditions in the first half of the decade, much of it was expected as the echo boomers began to form independent households and immigration continued to climb." Unfortunately for the Cambridge cogitators, not only have the unusually favorable homebuying conditions evaporated, but the immigration trend also fueling the boom has become an outmigration trend.

A recent Wall Street Journal article chronicling this trend read, "After years of growth, illegal immigration to the U.S. from Mexico and Central America has slowed sharply. At the same time, say demographers and immigrant advocates, more Latin American immigrants like Mr. Carrillo are apparently returning home." Further The Journal opined "It is difficult to track short-term changes in the population of the estimated 12 million immigrants who are in the U.S. illegally. But a new study by the Pew Hispanic Center, an independent think tank in Washington, D.C., estimates that annual undocumented arrivals from Mexico are down about 25% this year from 2005, to about 350,000. Undocumented arrivals from Central America have been halved since then, to about 120,000, according to the study." Of course the poetry of this situation was that the big attraction to foreign nationals coming to the U.S. in prior years was....drum roll please....well paying jobs in the U.S. housing construction industry.

Which brings us to the latest poetical situation, this one in our own Big Apple. An article in this week's Crain's New York entitled "Tourism Well Running Dry" avers that the strong visitation trends that have favored the New York City economy are about to run into a buzzsaw of domestic belt tightening, a stronger U.S. currency and weakening foreign economies. Meanwhile NYC & Company, the city agency tasked with counting visitors to Gotham, says that visitation is on track for 47.7 million tourist visits this year up 3.4% from 2007. Further, it quotes an official saying that a slowdown is not inevitable and averse currency trends don't matter because "the strength of the product is so amazing." In contrast, Carlson Wagonlit Travel (a very large travel agency) reports a 12% drop in domestic and international business travel to the city through August. The chart below shows the visitation figures for the last 10 years.

You can see the significant growth since the post 9-11-01 trough, starting in 2003. What may be less visible is the very significant contribution of the foreign visitation componet to the growth in the last 4 years, during the worldwide oil, commodity, and property boom. In fact, of the 6 million increase in visits to New York between 2004 and 2007, 2.6 million, or 42.6% was accounted for by the increase of foreign tourism, which constituted a seemingly less weighty 19% of all visits in 2007. In other words, if foreign tourism reverts to a pre-global boom level, it's likely to have an outsized effect on overall visitation to New York, despite its smallish overall percentage. I wouldn't be surprised if foreign tourism, coupled with the global boom were not the major catalysts for demand for New York City real estate by foreigners, both residential and commercial. After all, where's an international real estate mogul to take his wife shopping, while he does business anyway (or vice versa)? Plus we all know it was simply impossible to get a decent hotel room - before they started putting up a hotel every five minutes - so why not own a place. Of course the other great attraction to New York City real estate is it always goes up.....oooh.

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