Have you noticed a bit of division in the news … over just about EVERYTHING?
As you may know, we obsess on all things economic and how they affect Main Street real estate investors … and try to steer clear of the more divisive topics.
But even the financial news is a polarized collection of confusing banter.
On the one hand, we see reports about low unemployment, GDP growth over 4 percent, rising consumer confidence, and record-high small business optimism.
That all sounds awesome.
On the other hand, we read about record levels of household debt, stagnant real wages, and growing government deficits … at a time when interest rates are rising.
Then there’s the ballooning corporate debt, grossly underfunded pensions even as boomers are retiring at 10,000 plus per day … and the hard-to-understand impact of a strong dollar on pretty much everything.
All that sounds mostly scary.
Sure, you could say it all blends together into a balanced and comfortable investing climate …
But that’s like saying if you have one foot in a bucket of boiling water and the other in a bucket of ice water … on average you’re comfortable. Probably not.
But before you pull the sheets over your head and hope it all blows over, consider this pearl of wisdom from Atlas Shrugged author, Ayn Rand …
“You can avoid reality, but you cannot avoid the consequences of avoiding reality.”
Of course, we’ll never unpack all this with today’s simple commentary …
… but we hope to encourage you to watch what’s happening, get in conversations with similarly engaged folks, and consider how all these things can and do affect YOU and YOUR investing. Because they do.
For now, let’s just take a VERY simple investing principle and see if it helps us make sense of this schizophrenic financial world …
Would you borrow money at 2 percent if you could invest it at 4 percent?
Most investors and businesspeople would. So on its face, the borrowing isn’t the big problem. It’s maintaining a positive spread.
This is the world real estate investors live in … borrowing and investing at a positive spread.
Of course, it gets a little trickier when rates are rising. But the fundamentals of the game remain the same. When rates rise, you MUST increase earnings, or you lose.
So it’s not just how much you borrow, but what you do with the proceeds. If you borrow to consume or retire less expensive debt, you’re in trouble.
If you borrow to invest in growth, to acquire higher-yielding assets, to start profitable businesses … debt can be your most valuable tool.
Right now, Uncle Sam is borrowing and spending at a wicked pace. The multi-trillion-dollar question is whether the borrowing will pay off.
The most recent 10-year Treasury auction saw a record amount of U.S. debt offered and scooped up by investors … at a yield under 3 percent.
(We watch the 10-year because it’s the most correlated to mortgage rates)
So it seems bond investors aren’t overly concerned about Uncle Sam’s debt-levels and capacity to repay with a comparably valued dollar. For now.
And in spite of the highly touted tax cuts, federal income tax receipts actually GREW nearly 8 percent in the first 10 months of 2018.
BUT … while income is up, deficits and debt are up MORE.
As investors, we understand it sometimes takes time for investments to pay off, so it’s probably not time to judge … yet.
However, this is something we’ll continue to watch carefully.
If the investments pay off, especially in a way that resurrects rust belt markets… there could be some serious real estate investing opportunities on the horizon.
If they don’t, and this is all just a debt-driven faux boom, the end game could be a collapsed currency, ugly recession, and interest rates even the Fed can’t hold down.
Of course, if all the “bad” stuff happens, there’ll be lots of quality assets available at fire-sale prices … for those with enough foresight to liquefy some “boom” equity and keep it at the ready.
Of course, probably the BIGGEST opportunity in either scenario is to have a large network of aware and prepared investors on speed-dial … so you can put together investment funds to ride the wave or pick up the pieces after a crash.
The bottom-line is …
… it’s not external circumstances that primarily control individual success or failure, but rather the individual investor’s awareness, preparedness, and propensity to ACT as circumstances unfold.
How are YOU preparing?
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