7/7/13: Moving Market Metrics and What They Mean to Real Estate Investors

Gold, oil, interest rates, the dollar and the Dow.  These are just a few of the many market indicators captains of investment funds watch.  But what, if any, importance do these items have for real estate investors?

In the studio to muse on the meaning of moving market metrics:

  • Your captain of conversation, Robert Helms
  • Co-host and pit chief, Russell Gray

Whether you’re a race car driver or an airline pilot, it’s important to pay attention to your dashboard.  All those little gauges are measuring important factors which affect the performance of your vehicle.  And you’ve probably noticed that the higher the stakes, the more gauges there are.  After all, lives are at stake.

It’s an apt metaphor for investing.  When you’re operating your investment vehicle and navigating the dynamic landscape of the economy, it’s important to watch your gauges.  And the higher the stakes, the more critical it becomes to monitor those indicators.  No wonder the big fund managers obsess on financial market data.

If your plan is to build a big real estate empire, at some point you’ll want to become skilled at watching and interpreting various financial market metrics.  And the sooner you start developing those skills, the sharper you will be when the time comes that you really need them.

But it doesn’t mean you have to be a nerdy rocket scientist (our apologies to all nerdy rocket scientists).  That can be intimidating for average Joes.  But it does mean paying attention, taking time to think and ask questions; and engaging in thoughtful conversations with your advisors and other committed investors.  It’s one of main reasons we do our annual Investor Summit at Sea™ and why you should seriously consider joining us.  Where else can yo go to talk economics and real estate investing for an entire week with people like Peter Schiff and Ken McElroy?

Okay, enough pitching…but you should come with us. 😉

Lots of real estate investors live in a bubble insulated from many of the things that keep paper asset investors up at night.  We think that’s a mistake.  Ignoring the bond market cost a lot of real estate investors a lot of money in 2008.

So gold has been in the news lately.  After a decade long bull run, gold tanked to a 3 year low and at a pace unseen in decades.  So what?

Well, if you start from the premise that gold’s value is fixed and that the value of the dollar is what’s changing, then gold can tell you what people think about the dollar and the American economy.

For example, take a look back over the gold news for the last several weeks.  You’ll find that gold dropped when a positive jobs report came out.  Now we know some might argue the jobs report wasn’t really positive because the U.S. created a lot of part time service jobs and decreased full-time manufacturing jobs. But that’s a different discussion.

The point is that gold’s movement is telling us that something is happening.  And when we dig deeper, we find out that the jobs report was “positive”.  When we dig even deeper, we find the kinds of jobs being created are part time, low-paying, service jobs.

So it may be that America is getting poorer meaning less people will be able to afford to buy and more people will have to rent in lower priced areas.  As a real estate investor, is this good to know?  Might this influence which markets. product types and price points you invest in?  Sure, it’s only one data point, but it’s something to think about.

What about oil?

This one’s a little easier to understand.  High oil cost means high gas prices.  High gas prices means less money to pay rent.  But it also means that EVERYTHING that is transported just got more expensive.  After all, someone has to pay for those increased fuel costs when shipping products from manufacturer to consumer.

If you’re a paycheck to paycheck tenant and you’re commuting every day, will higher gas (and therefore commute costs) affect which areas you decide to live in?  Probably.  Maybe not at first, but if life is getting more expensive, people will move.  This is especially true on the lower end where $25 or $50 a month is a lot of money.

What about the stock and bond market?  We can almost look at those together because usually (not always) they go up and down like a teeter totter relative to each other.  That is, when stocks are up, bonds are down and vice-versa.

Once again…so what?

Well, rising bond prices means lower yields (interest rates).  And rising a rising stock market usually means rising interest rates because as bonds fall, interest rates rise.

It amazes us how many real estate investors are surprised that interest rates have been rising, even though the rising stock market completely predicted it.  But if you don’t think the stock market matters to you as a real estate investor, you don’t pay attention to it, so you’re surprised.

Surprises are fun at birthday parties and at Christmas.  They aren’t fun in investing.  It’s better to pay attention.

We could go on and on (and on and on), but you get the idea.

Our point is that the more you have (or want to have), the higher the stakes are and the more important it is to look at the big picture.  But don’t over-think it.  You’re not looking to crack the code and hit a grand slam home run.  You just want to be a little ahead of the game and avoid unpleasant surprises.

Now for a pleasant surprise, listen in to this episode and have your brain stimulated for a little while.  Then make your plans to join us for a week of education and lively conversation (and some warm Caribbean sunshine) at our 12th annual Investor Summit at Sea™.  It’s going to be awesome!

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