We’re proudly filing this under the category of “We told you so.” ….
Stripe workers who relocate get $20,000 bonus and a pay cut
– Bloomberg, 9/15/20
“Stripe Inc. plans to make a one-time payment of $20,000 to employees who opt to move out of San Francisco, New York or Seattle, but also cut their base salary by as much as 10% …”
“… companies … have expanded opportunities for employees to work remotely while also signaling … pay cuts if workers move to less-expensive cities.”
“VMware Inc. … Facebook Inc., Twitter Inc. and ServiceNow Inc. have all considered similar measures.”
Of course, we could just as easily file this under “Duh.”
After all, when companies discovered they could move jobs to China and Mexico to save money and increase profits, they did.
Modern tech empowers remote working.
And while many info workers might not be keen on moving overseas … moving to low cost, low tax, good quality of life states is not just palatable … it’s appealing.
The COVID-19 lock-downs have forced businesses into improving their remote workforce management … opening everyone up to a win-win move.
Companies LOWER their labor expenses, while employees improve their NET lifestyle in more affordable markets.
Also obviously, this has implications for the demand for real estate … housing, office, retail … in both the markets losing and those gaining people and their paychecks.
This is just one of many trends the COVID-19 crisis has accelerated, though likely still in its infancy … and worth watching.
That’s why we created the COVID-19 Crisis Investing video series … and why we’re getting regular updates from our Boots-on-the-Ground correspondents.
Shift is happening … and faster than usual.
Investing in this environment is like driving a car … the faster you go, the farther up the road you need to look so you have time to react well.
Here’s another noteworthy article with insights which are a little more challenging to decipher, but worth the effort …
The Death of the 60/40 Portfolio
– Yahoo Finance, 9/6/20
“That’s stock talk. It doesn’t apply to me. I’m a real estate investor!”
Really?
Well, before you click away to check the latest mortgage rates or political pandering, consider …
While 60/40 refers to a typical Wall Street portfolio allocation model for a mix of stocks and bonds.
The reason it’s been a staple … and the reason it’s changing … is highly relevant to real estate investors.
“The biggest takeaway is that Woodard’s team is more confident than ever that … interest rates … will likely … move considerably higher … arguing that investors should start to move away from bonds in their current allocations.”
The “Woodard” they’re referring to is Jared Woodard, Head of the Research Investment Committee for Bank of America Research.
So he’s well-qualified to have an opinion worth contemplating.
But it’s not just rising interest rates that are interesting to real estate investors …
(though that’s a compelling reason to secure as much low-cost long-term debt as you can while you can)
… but his recommendation to “move away from bonds” is important.
So in another “surprise said no one” moment, are reports the two biggest U.S. bondholders in the world (China and Japan) have already started “moving away”.
That’s because when rates rise, bond values fall.
And like any bubble … when bondholders head for the exits en masse, it sets off a very disrupting chain of events in the macro-strata of the financial system.
Of course, as you might suspect … it all rolls downhill onto the often unsuspecting denizens of Main Street.
The reason it’s SO extreme is because of the way bonds are used in the financial system.
In real estate terms, they’re used like properties with equity. The owners borrow against them to raise more cash to lever into more “assets”.
Except these loans against bonds come with margin provisions … which means if the value of the bond falls, you’re either forced to sell at a loss or borrow more.
The point is when balance sheets at every tier of the financial system are stuffed with leveraged bonds …
… a collapse of bond prices is a BIG problem for everyone … including real estate investors. Remember 2008.
(Yes, we know we’ve covered this before. But although the asteroid is moving slowly towards Earth, it still seems important to talk about it and prepare.)
Of course, in 2008 bonds collapsed because of a higher than expected default rate in sub-prime loans.
Yes, it’s true, that was then and this is now. But with an economy still largely locked-down, headlines like this should surprise … no one …
Lower-Credit Homeowners Weigh Heavily on U.S. Mortgage Market
– Bloomberg, 9/15/20
But whether it’s sub-prime borrowers defaulting, large foreign holders dumping, interest rates rising, or leveraged bond-loans going bad …
It doesn’t matter WHY bond values fall … if they do, it’s a threat to the financial system.
The fix, of course, is lots of dollar printing by the Fed, which (as we’ve been saying and saying and saying) puts a lot of pressure on the dollar …
Dethroned Dollar Is Making Waves Across Markets, in Five Charts
– Bloomberg, 9/15/20
Of course, as this article points out, there are different tactics for investors to mitigate risk and capture opportunity …
“Savvas Savouri at Toscafund Asset Management recommends switching out of conventional Treasuries and into inflation-protected securities.”
“’The simple reality is that the only feasible way to get the U.S. to the preferred inflation target is through a dollar devaluation,’”
The article also mentions gold as an alternative tool for the job …
“The dollar’s decline has also helped thrust gold onto center stage … some investors are betting that [gold] bullion will prove a better haven than Treasuries as inflation bites …”
So while there’s a fair amount of consensus about the challenges … there are variations on how to best address it.
And in yet another “surprise … said no one ever” moment …
… real estate is completely missing from mainstream financial media’s discussion of potential solutions.
That’s like heading out to a job site and leaving your best power tools at the workshop. Then again, if you don’t know how to use them, what good are they?
Of course, any talk about the what, why, and how of real estate investing is completely omitted because (in our not-so-humble opinion) mainstream financial media exists to protect and promote Wall Street.
That’s probably why YOU are here. It’s certainly why we are.
The GOOD NEWS is, whether you’re investing in your own account or organizing syndications with private investors …
… there’s a LOT of opportunity RIGHT NOW to use the right real estate as the foundation of a resilient real asset portfolio.
The GREAT news is that even though things are moving faster than normal …
… there’s still time to build your knowledge and relationships and to organize your life and portfolio to get in on the action.
The asteroid hasn’t struck yet … and while it may not … better to be prepared and not have a crisis than to have a crisis catch you unaware and unprepared.
We’re working hard to step-up the volume of ideas, resources, people and opportunities we share with you right now … because we think the times demand it.
There’s a “new normal” on the horizon …
… and while real estate is real, essential and a time-tested vehicle for wealth building and preservation …
… there are new rules and strategies emerging … because market conditions are dramatically shifting.
So be SURE to subscribe to our re-launched YouTube channel, follow us on Facebook, and of course, subscribe to the podcast.
When you support ALL our distribution outlets with your listens, views, likes, shares, comments, questions, and reviews …
… you make it easier for us to attract the guests and resources necessary to produce more and better content for you.
We appreciate you … and look forward to thriving through this crisis with you.
Until next time … good investing!
