It’s probably an understatement to say the financial news is conflicting and confusing at best … and perhaps distracting and misleading at worst.
To make matters worse, mainstream financial media and most alternative media don’t look at events from the perspective of Main Street real estate investors.
But we do.
So let’s take a look at a swath of headlines to see if we can find clues to help Main Street real estate investors make smarter strategic decisions.
Are rising interest rates the real deal … or a head fake?
The Fed says they have zero plans to raise interest rates from zero … and they aren’t afraid of a little inflation.
“Inflation? Ha! I laugh in the face of inflation!”
We suppose if we measured inflation the same way they do, we wouldn’t be afraid of it either. But we don’t live inside the Eccles Building.
Out on Main Street, it’s a different story.
As we discussed in our two-part tome, A Theory on What’s REALLY Happening, inflation (which is a nice word for a failing dollar) on Main Street is substantial.
Much of the stuff that matters to Main Streeters, like food, energy, and housing are all much more expensive.
Bigger picture, as we’ve explained a gazillion times, there’s WAY too much debt in the system to allow interest rates to go up ON PURPOSE.
If interest rates rise in the real world, we think it will be a symptom of the globe repudiating the dollar.
Oh, wait … this just in …
Russia’s top diplomat starts China visit with call to reduce U.S. dollar usage
– Reuters, March 22, 2021
Yeah. But it’s THOSE guys. No one likes those guys anyway.
… China and Russia have been colluding to dethrone the dollar for a decade.
Maybe it’s just bluster. Or maybe these things just take a while.
Meanwhile, we heard a rumor Japan’s been dumping U.S. Treasuries, which could be the force behind rising rates … and why the Fed seems unconcerned.
In other words, it’s a temporary move related to their own currency manipulations … and they’ll be done soon.
Besides, it’s not like the Japanese haven’t done some Treasury spring cleaning in the past. So we’ll just keep watching.
Right now, we’re still more concerned about a falling dollar in terms of REAL WORLD inflation … versus rising interest rates.
That’s because inflation is hardest on the typical renter … who doesn’t have a lot of room in their budgets to absorb higher energy, food and housing expenses.
Meanwhile, what are the big players doing?
It SEEMS like everyone and everything is headed south …
We discovered a great shortcut for strategic intelligence. We call it “Follow the Big Dogs”.
Big dogs are the big money players with research teams, big budgets, staff economists, and a lot riding on their analysis.
Sometimes we can simply follow their money and ride a wave. After all, if huge money is moving into a market, it’s likely a lot more will follow. Big dogs run in packs.
More often, we can infer an investing thesis by simply watching what they’re doing and asking why.
We might not be able to play at their level, but as we pick out patterns and principles, find variations on the themes … and apply them in our world.
So here are some Big Dog headlines we keyed in on when they hit the feed …
Manulife Investment Management completes acquisition of Brazilian timberlands
-PRNewswire, March 23, 2021
In case you’re not familiar, Manulife is a Canadian financial services company with billions in profits. Lots of cash to place. Big research budget.
Their priority is to “strategically invest in its private markets’ assets across timber, agriculture, infrastructure, real estate, private equity and credit.”
What? No Game Stop? No FAANGs? Treasuries? Stonks?
Nope. Pretty much all REAL stuff. And in this case, nearly 13,000 hectares of timberland in South America. That’s about 32,000 acres.
And the good news is, there are ways for small investors to play. You don’t have to buy thousands of acres.
Of course, South America might be a little too far for some investors. And while trees and plants grow on you, some investors prefer tenants with hair on top.
Or maybe there’s a happy medium …
Life Companies Favor Self-Storage for Its Consistent Performance
– Globe Street, March 22, 2021
So boxes don’t have hair on top … at least not at first. (Go for climate controlled when you can. Boxes get funky when moist.)
Boxes also don’t grow or reproduce like cattle (another interesting investment we’ve looked at in the past).
But the appeal to the big dog life insurance company is … go figure … more financial. The clue’s in the headline … “consistent performance”.
You probably know life insurance companies are extremely risk averse. And they’re REALLY great at analyzing data, crunching numbers, and managing risk.
So it’s a huge clue when these big dogs all hunt a particular class.
Life insurance companies have been heavy office and apartment investors for a long time. But the times are changing.
From the article …
“Many life companies … favor this asset class due to the strong performance of well-located and well-operated properties in this environment.
… self-storage properties perform consistently in both growth and recessionary markets … It is a unique asset class in that way.”
As you might expect, self-storage is another niche we’ve talked about on the radio show. Yeah, we’re pretty clued in.
But as much fun as it is bragging about being ahead of the curve, our point is there were clues about these trends YEARS ago.
There are also clues about tomorrow’s trends today. And you don’t need a multi-million research department to see these trends coming.
You just need to pay attention, think, and be willing to trust your own judgment.
Meanwhile on the home front …
Existing home sales plummet in February as inventory reaches record low
– Yahoo Finance, March 22, 2021
Pretty self-explanatory. You can’t buy things that aren’t for sale. Remember toilet paper when the pandemic first hit? Shelves were wiped clean.
And then there’s mortgage rates …
Mortgage rates below 3% are still around, but they’re disappearing fast
– MoneyWise via Yahoo Finance, March 21, 2021
Again, self-explanatory. We already discussed our thoughts about the longer-term interest rate trend. So low is the main point. Disappearing is debatable.
Of course, low interest rates combined with low inventory explain another headline …
Renting and Buying Are Less Affordable Than Ever
– Globe Street, March 22, 2021
“A new report from the Mortgage Bankers Association’s Research Institute for Housing America shows that annual median rent growth rose at 2% above inflation, whereas annual median income rose 0.8% …”
“There is a significant lack of affordable housing supply in the United States, and the problem is worsening …”
Hint: Low rates and loan subsidies for buyers won’t solve the affordability problem. It only increases demand and capacity today, which bids up the price, and exacerbates the inventory and affordability problem.
And speaking of problems …
Oaktree Closes Eighth Real Estate Opportunities Fund at $4.7 Billion
– Business Wire via Yahoo Finance, March 23, 2021
That’s a big dog. And it’s buying out in the market buying problems …
“The pandemic has created a compelling set of credit-focused investment opportunities … the Fund has invested or committed approximately $1.7 billion in … purchases of distressed real estate-related securities … and “rescue” financings for public and private real estate lenders and owners experiencing problems with their leverage.”
So Oaktree sees things heading south. And they’re not the only ones …
Yes, that’s a jumbo headline. We didn’t write it. But it did catch our attention.
Here, two big dogs are working together to place $200 million in build-to-rent single family homes in the southern United States.
That’s because all problems are opportunities. Understand the problem, and you’re likely to see the opportunity.
The answer to lack of inventory and high prices is MORE inventory.
But because it’s real estate, it needs to be in the right place … and at the right price … targeting the right demographic.
We could go on and on … can you tell?
But the point is that it doesn’t seem like the big dogs are seeing booming jobs and wage economy in the near future.
They appear to see problems … and are busily positioning themselves to invest in the solutions.
You can do the same thing.