Issue 81
August 30, 2020
_________ __ ________ _ ___ ___ | _ _ |[ | |_ __ | / |_ .' `. .' ..] |_/ | | \_| | |--. .---. | |_ \_|__ _ `| |-'__ _ _ .--. .---. / .-. \ _| |_ | | | .-. |/ /__\\ | _| [ | | | | | [ | | | [ `/'`\]/ /__\\ | | | |'-| |-' _| |_ | | | || \__., _| |_ | \_/ |,| |, | \_/ |, | | | \__., \ `-' / | | |_____| [___]|__]'.__.' |_____| '.__.'_/\__/ '.__.'_/[___] '.__.' `.___.' [___] ____ _____ ____ ____ __ ______ _ _ |_ \|_ _| |_ _||_ _| [ | _ .' ___ | (_) / |_ | \ | | .---. _ _ __ \ \ / / .--. _ .--. | | / ] / .' \_| __ `| |-' _ __ | |\ \| | / /__\\[ \ [ \ [ ] \ \/ // .'`\ \[ `/'`\]| '' < | | [ | | | [ \ [ ] _| |_\ |_| \__., \ \/\ \/ / _| |_| \__. | | | | |`\ \ \ `.___.'\ | | | |, \ '/ / |_____|\____|'.__.' \__/\__/ |______|'.__.' [___] [__| \_] `.____ .'[___]\__/[\_: / \__.'

On August 13th hedge fund manager, entrepreneur and business owner James Altucher penned a convincing essay titled “NYC Is Dead Forever. Here’s Why.”

One week after Mr. Altucher’s piece was reprinted in the NY Post, comedian Jerry Seinfeld passionately refuted Altucher’s claims in an Op-Ed published in the NY Times titled “So You Think New York Is ‘Dead’ [It’s not.]" Immediately thereafter, Altucher shot back with his own rebuttal, dissecting and rejecting Seinfeld’s argument’s in a NY Post editorial titled, “Sorry Seinfeld Your Love of NYC Won’t Change The Facts About Its Crisis.”

Mr. Altucher and Mr. Seinfeld have differing points of view, but one thing is for certain, the coronavirus has walloped New York City. The Big Apple has 239,000 officially recorded cases of COVID-19 – statistical samples point to the real number being 10-15x higher - and ~24,000 fatalities. The city’s economy has been battered. Many local businesses have gone bankrupt and or barely surviving. National employers have instructed many of their personnel to work from home. Office buildings sit eerily vacant. Commercial and residential real estate values have plummeted. Unemployment is up. Broadway is shut. Gyms are closed. Most museums and other cultural attractions are still shuddered. Tourists are hard to find.

There is tension in the streets. New Yorkers are on edge. Violent crime, including homicide, has risen materially and shows no sign of abating. Burglary is up substantially too. Some frightened citizens are carrying “mugger money,” (cash people kept in a separate place on their person during the crime ridden 70’s and 80’s) again. Almost 500,000 New Yorkers (~5% of the city’s population), many of which are high wage earners that contribute disproportionately to its tax base, have fled Gotham for safer havens. Some will never return. In part, as a result, city tax receipts have collapsed, social services have been cut, the Mass Transit Authority (MTA) is in financial (and physical) tatters and there is an acute homeless crisis.

Our View

This author resides in NYC and is penning this article from the borough of Manhattan. In our view, New York City is not dead, but it is certainly in critical and unstable condition. Compounded by the gross ineptitude of local “leaders” and lack of federal assistance, it will almost certainly continue to wither and deteriorate in the near term. However, our base case differs markedly from the plethora of apoplectic doomsayers who argue that NYC’s best days are in its rear-view mirror.

When people make knee jerk, emotionally driven reactions to atypical events, often taking the contra side of those reactions is profitable over the medium and longer term. In fact, if NYC were a stock, we would be buying it.

Caveat emptor: Our more constructive view is predicated on federal assistance for NYC. Despite the rhetoric in Washington, we ultimately think a robust rescue package will be crafted for New York and other cities desperately short of funds.

Federal Funds

In late 1975, following years of financial profligacy, depopulation, and an eroding tax base (sound familiar?), NYC was on the verge of bankruptcy. Mayor Abe Beam appealed to the Federal Government for assistance. President Gerald Ford emphatically turned down Beam’s request in an infamous speech made on October 29 of ‘75. The following morning, New Yorkers were greeted to a Daily News headline that read, "FORD TO CITY: DROP DEAD."

Today, the political climate is certainly different; even conservative politicians are more amenable to bailouts. However, one specific reason we think NYC will receive federal assistance is that many of President Donald Trump’s most valuable parcels of real estate are located in Midtown Manhattan.

Murder She Wrote

The surge in gun violence has captivated New Yorkers. Seemingly everyday there is a headline in one of NY’s local papers depicting how many people were shot and killed on a given day or over a weekend. Indeed, as of August 16th, 259 people have been murdered in New York this year, a stunning 30% rise from this juncture in 2019. If the homicide rate remains constant throughout the remainder of the year, the city will record ~400 murders for 2020. These figures are certainly troubling. However, if we examine the data in historical context (and not in a vacuum), the statistics tell a different story.

Consider the following: In 1990, a year that marked the end of the crack epidemic and the peak of violence in New York City, 2,245 people were murdered. The homicide rate in 1990 was ~5.5x higher than it stands today. It is also important to bear in mind that in 1990, the population of NYC was 7.32M people vs 8.4M people at the beginning of 2020. Hence, even if we subtract the ~500k people that have fled, when controlled for population, the contrast in murders between three decades ago and today becomes even more pronounced.

To help put NY’s rise in violent crime in historical context, we have provided some supplemental data. Each year is followed by the number of murders that occurred.

1990: 2,245

1993: 1,927

1998: 629 (this number remained ~consistent into the new millennia and then declined again, albeit at a slower pace, reaching an all-time low of 289 murders in 2018).

2001: 649

2015: 339 (notes: This number excludes the last 10 days of 2015. In 2015, New York was anointed the 10th safest major city in the world by The Economist).

2018: 289 (the fewest homicides in since the late 1940’s).

There has certainly been a marked uptick in violent crime (and quality of life issues) but we must be cognizant that unlike in 1990, today there are many more forums across a 24 hour news cycle for journalists and ordinary citizens to report on, and discuss, crime. Point being, there was materially more violence in NYC in 1990 vs today, but there is materially more people reporting on and discussing violence in NYC today vs 1990, thus magnifying the emotional response to what is an increase in crime from a very low base.


James Altucher argues that NYC is in structural (not cyclical) decline, that this time is different because unlike past economic and /or quality of life crises’ that prodded city dwellers to decamp for greener pastures only to return when the environment normalized; this time, they will not come back. Altucher makes the valid point that Internet speeds are now fast enough for employees to work from home while maintaining their current levels of productivity. Hence, because technology has closed the distance between NYC and the suburbs, many benefits of living in The Big Apple are no longer valid.

In the 1940’s and 50’s, The Motor City was a thriving metropolis filled with various cultural attractions and home to America’s booming auto industry. For multifaceted reasons that go well beyond the scope of this article, over a timespan of ~60 years, Detroit de-populated, lost 61% of its inhabitants, and became a violent shell of its former self. During this tenure, the city was so grossly mismanaged that many of its remaining residents lacked access to basic public services. Following the great financial crisis, the city’s demise was culminated when Detroit filed for the largest municipal bankruptcy in American history. The Motor City is still in its recovery phase. Might NYC go the way of Detroit?

Mr. Altucher is correct about the power of technology, but incorrect about the long-term viability of NYC and the willingness of people that will desire to be in, and or, return to The Big Apple. New York will not become the next Detroit.

The Big Apple’s international reach and popularity is unmatched. Unlike Detroit and other once thriving cities – but never international meccas - in the Midwest and rust belt, NY has direct flights to every major city in the world. NYC is by far the most densely populated and most visited city in the U.S. – tourists will return. At its peak, Detroit only had 1.8 million people. NY has ~8M culturally diverse residents, and to borrow a phrase from a trusted source, “a unique cityness to it that is not found elsewhere.”

Indeed, NYC’s depth and breadth of cultural, musical, religious, educational, culinary, and artistic venues is the very best in the world and provide strong incentive to live in NY. Lastly, while it’s disproportionately weighted towards financial services, NYC’s economy is diverse, and the city itself is strategically located and in a time zone that facilities trade and commerce.

If New York City Were A Stock

The stock ticker would be NYC, that is the easy part. The harder part: when exactly do you buy NYC and do you use up all your ammunition in one shot or establish a position in NYC over time? We advocate slowly buying NYC over a 6-12-month time horizon.

It is difficult, if not impossible to pin the low point in any upheaval and this crisis is no different. In the near term the situation in NYC will probably get worse before it gets better. Be patient in buying and bide your time. That said, we think NYC’s best days are in its future. And remember, often when “experts” utter the phrase “this time is different,” it is often a signal we are at, or near, an inflection point where things begin to revert to “normal.”