Editor’s Note: It seems there was a delivery problem with our last muse … either spam filters found the content delicious … or the thought police didn’t like our attitude. 😉
“Great read! I’m looking forward to the crisis investing webinar!” – Ben B.
“Excellent article. I highly recommend …” – Jan G.
“Love your info … and your humor!” – Douglas L.
“This is a great one. Is there an online version to share?” – Jason O.
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Of course, if you love it … first, tell us (it helps feed our enormous egos) …
… then share with your family, friends, colleagues, neighbors, ex-lovers, personal shoppers, and random strangers walking their dogs past your house.
On to our current hot topic of consideration …
Actually, there are too many hot topics to pick a clear winner, so while we’re busy ramping up our content creation schedule (that’s a tease) …
… here are some notable headlines with short commentary on why we think they’re useful for real estate investors.
(You can file all these under “We’re not in Kansas anymore.”)
According to both World Bank and IMF, as reported by Statista, China is now top of the list of Biggest Economies in the World …
Yes, we realize there are debates about whose is bigger depending on how you measure. But that’s majoring in minors.
It’s really not size that matters, but quality.
An industrialized economy puts people to work making things. Look around at the labels on just about everything Amazon delivers to you. Made in … where?
A financialized economy puts people to “work” recycling currency … using paychecks to make loan payments, and borrowing to consume … products made somewhere else.
Of course, it’s the exorbitant privilege of the dollar’s reserve currency status that keeps the financialization game alive. But we’ll save that for future discussion.
Meanwhile, if politicians can break the Wall Street wizards’ spell over them … (maybe the recent shortage of medicine and masks in a crisis will do the trick)
… there might be a serious effort to re-industrialize the United States.
IF that happens … some markets left for dead after the great manufacturing exodus might be resurrected … or new ones will emerge.
If you can spot the trend early, you can make your move ahead of the influx of capital and people.
Meanwhile, the financial system is starting to show signs of stress …
‘This is not a normal recession’: 3 large US banks set aside $28 billion to cover potential loan defaults due to the coronavirus pandemic
-Business Insider, 7/14/20
Mariners in pre-tech seafaring kept a lookout perched in the Crow’s Nest.
The lookout keeps a 360 degree view out to the horizon, and warns of looming threats like storms, obstacles, or hostile vessels.
In today’s world, there are hundreds of financial lookouts … all perched higher than we mere mortal Main Street investors.
If we’re correct that the world is only in Act 1 of a 4-part cascading crisis (Act 1 – health crisis, Act 2 – economic crisis) …
Then Act 3 is a financial system crisis … major problems in credit markets and banks.
A financial system crisis happens when debt does bad faster than the system can absorb. It’s like when a virus overwhelms your immune system.
The first to know are the borrowers. But unlike public companies, most people and private businesses keep financial woes to themselves.
Next in the “bad debt early notification” food chain are lenders … most notably banks. They see payments coming in late or not at all … long before it’s reported.
And according to this Business Insider report, the biggest banks just beefed up loss reserves … by more than any time since 2008.
(Hmmmm …. that date rings a bell … something about a financial crisis …)
“This is not a normal recession.”
– Jamie Dimon, CEO of JP Morgan Chase
Dimon points out that the recessionary piper whose can was kicked down the road by the Fed … is still up ahead on the road we’re on. He wants to be paid.
We’re not saying Dimon’s right. But he’s got a vantage point we don’t … and clearly, big banks see bad debt rising. Actions speak loudly.
Of course, when debt goes bad, prices collapse … which can be good or bad depending on whether you’re a prepared buyer or an unprepared seller.
And it seems savvy investors are starting to smell opportunity …
Non-listed REIT fundraising shows early signs of recovery
– Real Assets Advisor, July 14, 2020
This headline is a little off the mainstream, but sometimes that’s where you need to go for news about Main Street real estate investing.
In this case, the news is straight-forward … and not too surprising for anyone who understands shift happens.
After a gruesome May took the shine off a near record first quarter, June inflows into private REITs spiked back up by 83 percent.
Reading between the lines, it seems passive real estate investors see opportunity … and perhaps some safety … in real estate.
Of course, for many years we’ve been proponents of private syndications …
… for both real estate entrepreneurs as well as passive investors who want the benefits of real estate without getting their hands dirty.
It’s notable that private money is already making the move back into real estate.
And speaking of shift happening …
Coronavirus Accelerates Secular Shifts in Structured Finance
– Fitch Ratings, 7/9/20
Okay, this one’s a little wonky. But you don’t need a PhD to understand.
Remember, we live in a financialized world, so the first place opportunity and problems manifest are in financial markets.
And because we think the financial markets are next in line to feel the wrath of COVID-19 (or the reaction thereto) …
… we’re monitoring some of the more esoteric corners of the eco-system.
This Fitch report presents conclusions that are worthy of a closer look …
“Home price growth is likely to increase in areas where home sales and new mortgages are driven by migration to smaller cities or suburban and rural areas.”
“Sustained elevated unemployment and economic uncertainty may also mean fewer mortgage applications, particularly for first time buyers. This may increase demand for multifamily and single- family rental properties.”
Yes, it’s true these people aren’t real estate investors … and they’re not writing for real estate investors.
They’re addressing the research needs of debt investors … people and institutions who invest in derivatives of debt against real estate.
But because they know the debts they invest in are only as good as the ultimate collateral … the property and borrower … they pay attention to the same things you should.
The difference is they have big budgets, fancy computers, super-studious analysts … and they write these reports.
So for simpletons and cheapskates like us, it’s easier to cheat off their homework.
Of course, it’s certainly not crystal clear. In fact …
“Payment forbearance measures are clouding the credit picture, and high levels of loan modifications or payment holidays are posing challenges …”
Soooo … the bottom line of this commentary … which we conveniently placed at the bottom is …
At both the global macro level and the micro Main Street level, the world is changing bigly and quickly.
But with politicians and bankers manipulating financial markets, currencies, contracts, landlord-tenant law, tax codes, and even the personal freedom to make a living …
… NOTHING is clear. Yet.
It kind of feels like sailing on a big ocean liner operated by an allegedly competent crew … through a sea of icebergs and thick layers of fog.
But not to worry. The nation, the currency, the system are unsinkable. What could go wrong? Right?
Which way to the lifeboats? Just in case …