Market Perspective

Election 2018 – What is the Impact on the Land Market? Week 4

Posted by on Dec 18, 2018 in Ned Massie, Perspective | 0 comments

Impact on the Land Market: Increasing interest rates in turn increase the threshold rate of return used to evaluate investments. Moving from 0% to 4% literally ceases the experience that EVERY investment looks good and shifts investors to becoming selective. The prices of those assets not selected will then decrease until their rate of return matches the market’s Threshold Rate of Return. The impact will be greater towards the end of 2019 than the beginning of 2019. Last week’s blog about the impact of decisions by The Fed addressed that sequence. The short version is, if you want to sell some land the time to sell is NOW. The obvious land market segment that will be most negatively impacted is residential development land. The cost of new home construction never decreases but lot values in some segments will decline. Each residential segment will be impacted differently based on demand versus supply in that segment. Timberland has been steady to a slight decline over the last several years. I would rate timberland values as stable in 2019. Similarly, cropland values. Commercial and industrial development land will probably decline for the exact same reasons as residential lots, higher interest rates. Location will have a huge impact on land market trends in each of those segments. Because land is the source of all wealth, a really good piece of land is the very best long-term asset one can hold in their...

read more

Election 2018 – What is the Impact on the Land Market? Week 3

Posted by on Dec 13, 2018 in Ned Massie, Perspective | 0 comments

Grid Lock: The impact of a Democratic House of Representatives and a Republican Senate is probably government gridlock. Trump is not a typical politician, he is a businessman. It is the highest probability that the Democrats will continue their “Resist” posture in their pursuit of “power”. That means they will have missed an opportunity to find compromises that actually solve problems. Therefore, I believe the greater impact on the land market will come from the ripple effects of The Fed (does it stop raising interest rates or keep raising them) versus the economic stimulus of the 2017 Tax Law. We will witness the resolution of an amazing interaction between those two gigantic forces. If the PhD’s at The Fed have an epiphany and put interest rate increases on hold for 12-24 months, the 2017 Tax Act will prevail. If the PhD’s at The Fed keep raising interest rates in 2019, then The Fed will get to reduce interest rates in 2020 and 2021 to clean up their mess. It appears to me that the economy in the first half of 2019 will be similar to the second half of 2018. The second half of 2019 is probably a recession. Beyond that is too fuzzy to predict. Because land is the source of all wealth, a really good piece of land is the very best long-term asset one can hold in their portfolio....

read more

Election 2018 – What is the Impact on the Land Market? Week 2

Posted by on Dec 6, 2018 in Ned Massie, Perspective | 0 comments

The Fed: Based on my 46-year career in real estate, my mantra is “Never Bet Against The Fed”. The power of The Fed is currently being illustrated by the fact that by raising interest rates too quickly The Fed has managed to neutralize the very powerful economic stimulus of the 2017 Tax Act. I am tired of saying and you are tired of reading, but it is a fact: In the economic history of this world, no single country (much less the world) has ever successfully withdrawn the funny money stimulus euphemistically called “Quantative Easing” without suffering rampant inflation followed by economic collapse. Zimbabwe (100% inflation per day) and Venezuela (current inflation rate of 1,000,000% annually) are just two recent examples. Someone should educate the Democrats. The new home market is a significant economic leading indicator for a variety of excellent reasons. It is important that new home sales have been trending down for six months for several reasons but primarily because mortgage interest rates have increased faster than household income. While I only have an MBA not a PhD, I am in the trench and the PhD’s at The Fed get paid nicely whether or not they cause a recession. The recession will occur in late 2019 or early 2020. Its severity is dependent on how quickly the PhD’s at The Fed realize that they have caused a recession. Sorry, it is that simple. While this recession will be less severe than The Great Recession of 2008-2010 (also called the Great Financial Crisis or GFC), some folks will get hurt. Please do not be one of them. Because land is the source of all wealth, a really good piece of land is the very best long-term asset one can hold in their...

read more

Election 2018 – What is the Impact on the Land Market?

Posted by on Nov 29, 2018 in Ned Massie, Perspective | 0 comments

Introduction: Elections have consequences. Unfortunately, in my life I have witnessed the USA change from a Christian country to one that is now heathen/pagan. Most of our politicians reflect that change and seek office not to address problems but to raise campaign money off of them so they can stay in power. When elected officials are focused on “power” as opposed to actually solving problems by coming to a consensus agreement (known as compromise), really bad things happen in that country’s economy. Hang on tight. This situation will not correct itself until the adults come home. I hope they arrive before the home is destroyed. In the election of November 2016, a very clear message was sent. I find it sad that the Democrats choose power over solving problems by leading the “Resist” movement. Repeatedly over two years the Democrats displayed their choice. I wish I could say I never had seen such misbehavior before, but all three of my children had temper tantrums when they were three years old. The Democrats are much better at political theater than the Republicans. With the media solidly in their corner, they giddily anticipated a Blue Wave in 2018. The November 2018 elections did send a number of messages: In the history of off year elections, the anticipated “Blue Wave” was more of a blue ripple with a modest gain in seats in the House of Representatives but enough that the Democrats will control the House of Representatives. The most interesting pattern was the number of newly elected Democrats that campaigned on socialistic to communistic platforms. So foreign and strange are their positions advocating forms of government so flawed that they have and always will fail, that I found myself thinking of some of the Star Wars scenes. It will be fascinating to see how they behave now that they are in office. The most meaningful message of the election was that the Democrats won seats by making promises that cannot be fulfilled, even if they became law. The unexplained facts are that if the government took ALL of the money of the top 2% of households, it would still not fund the promises of these radicals. By the way, also unexplained is the fact that a household income of $100,000 puts that household in the top 2%. That the Democrat radicals won based on those promises, that is absolutely dangerous. The Republicans increasing their number of seats in the Senate to 53 vs. 47 Democrats was a message. It is also important because it diminishes the impact of two Republican Senators who have only occasionally shown backbone. That change probably bodes well for treaty approvals, etc., as well as the blocking of the Democrat radicals in the House of Representatives. For the month of December in anticipation of the New Year, we will summarize what we think are some of the impacts on the land market of the 2018 election. Because land is the source of all wealth, a really good piece of land is the very best long-term asset one can hold in their portfolio....

read more

Understanding How “This Time Is Different” to Make Great Investment Decisions – Week 7

Posted by on Nov 14, 2018 in Ned Massie, Perspective | 0 comments

What is Different This Time – A Second Wild Card: The second wild card is the ripple effects of the stronger US Dollar created by The Fed as it raises interest rates. Raising our interest rates results in a stronger US Dollar. When the US Dollar strengthens, other currencies lose value relative to the US Dollar. As a result, emerging markets have all sorts of negative economic impacts. The short-term result is a slowing global economy. A slowing global economy sends ripple effects globally. Exactly how those ripples will impact the USA economy is unpredictable with any precision. That is the point where this “Normalization” transition could become bumpy. Add a Black Swan Event to the mix and serious problems could occur. The difficulty is accurately estimating the time required for all of these moving parts to move into harmony. Until that point is reached, our economy is subject to volatility and problems. It is critical to remember that land is the source of all wealth. Every product that we humans consume originates with land. Not all tracts of land are equal in quality and portfolio management requires every investor to hold some cash for liquidity. But historically, long term the best investment is...

read more

Understanding How “This Time Is Different” to Make Great Investment Decisions – Week 6

Posted by on Nov 7, 2018 in Ned Massie, Perspective | 0 comments

What is Different This Time – The First of Two Wild Cards: It is absolutely critical that The Fed return interest rates to whatever is “Normal”. But that transition is the event where in every previous attempt in history to “Normalize” resulted in total economic collapse. If The Fed had asked my advice, I would have recommended that they pause for one year whenever they increased interest rates by 1% per annum, four 0.25% increases per year. The one-year pause would allow the markets for financial and real estate assets to adjust. One wild card in The Fed’s current plan of action is that without a pause in the interest rate increases, the portion of the real estate market that does not have Section 179 assets is negatively impacted by interest rate increases UNTIL household income (HHI) increases enough to offset the higher mortgage rates. Therefore, how rapidly the HHI increases becomes a limiting factor to economic stability and recovery. HHI will increase and we will get to the point that because of higher HHI the higher interest rates will not be a drag on the economy. I believe that the same group that designed the 2017 Tax Law to underwrite support for the financial markets and commercial real estate, also relied on faster economic growth to spur low unemployment and creating a shortage of workers forcing employers to increase wages or HHI. As we said earlier, higher HHI will stabilize the non-commercial real estate market. Once...

read more