Market Perspective

The Three Horse Economy – Week 5

Posted by on May 16, 2018 in Ned Massie, Perspective | 0 comments

Which Horse Will Win? Short of a Black Swan event, the winner will be the American consumer. The 2017 tax law will combine with Gen Y buying houses resulting in strong economic growth. There may be some bumpy years but American economic growth will propel our economy and the world economy. Both 2018 and 2019 will be stellar years in economic history. What is difficult is forecasting beyond 2020 and beyond. At some point in the future there will be inflation followed by a recession as these three forces collide. But careful investing will preserve and create wealth. 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...

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The Three Horse Economy – Week 4

Posted by on May 9, 2018 in Ned Massie, Perspective | 0 comments

Horse #3 – Demographic Trends: A member of the Boomer generation and a student of demographics, I am aware of the fact that we Boomers have distorted the American economy our entire lives. At our peak there were around 80M of us, but because life is a fatal experience, today there are approximately 75M Boomers. The generation immediately after us, called Generation X, is about 25% smaller than the Boomers. Their size is approximately 60M. But their smaller size is beginning to have a huge impact on the residential market. Today most of Gen X owns a home and they have a mortgage rate that is probably in the 3% to 3.5% range. There is little incentive for them to move up, both in purchase price and higher interest rates, which would increase their mortgage payments. The generation following Gen X is Gen Y which is 10% larger than the Boomers and about 50% larger than Gen X. Most demographers would say that they are between the ages of 19 and 38. This group was hammered by the Great Recession, had a very difficult time finding full-time employment, and were unable to purchase cars and homes. Therefore, they created what is called the “sharing economy” (think Uber, AirBnB, etc.). Most of Gen Y have not bought homes but rather rented in urban environments where they could walk to work and enjoy an active social life. Today they are beginning to marry and raise families. There are some indications that as they marry, they will move to the suburbs and buy homes. Unfortunately, land use ordinances, subdivision ordinances, cost of construction, combine to make the production of first homes suitable for Gen Y extremely difficult. Demand greater than supply means prices increase so the market can ration the available homes. 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...

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The Three Horse Economy – Week 3

Posted by on May 2, 2018 in Ned Massie, Perspective | 0 comments

Horse #2 – The Fed: The Federal Reserve of the United States announced in May of 2014 that they were going to begin tapering their Quantitative Easing (QE). That announcement had a negative impact on the American and world economies as all commodities plummeted by at least 50%. To date, none of them have recovered to the prices in May of 2014. Rarely reported, when the Federal Reserve reduced its QE, the European Central Bank and the Bank of Japan increased their QE by a comparable amount. Therefore, the global QE remained the same. Now the Fed has begun to allow their assets bought during the QE to be paid off. This means that the Balance Sheet of the Fed is beginning to decline. While long-term a positive, it brings with it a short-term negative in that the amount of liquidity in circulation is decreasing. The ECB has announced that they are going to begin reducing their QE in September of this year. That will also cause a reduction in liquidity in the global economy. The result of a reduction of liquidity is higher interest rates. Increasing interest rates are a negative impact on the American economy. The easiest market to understand the negative impact is in residential sales. Most home buyers have a budget in which they need to stay. As mortgage interest rates increase, the number of buyers that can afford a home decreases which reduces the number of home sales. A similar impact occurs in the commercial market as higher interest rates drive up the capitalization rate (cap rate) that investors use to determine their opinion of value. As the cap rate goes up, the value of an income-producing property goes down. Therefore, a reduction in liquidity means higher interest rates, which means lower real estate values and a slower economy. The question is whether the growing economy and resulting increasing wages will enable borrowers to qualify to borrow more money faster than the higher mortgage rates will chase those potential buyers out of the marketplace. 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...

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The Three Horse Economy – Week 2

Posted by on Apr 24, 2018 in Ned Massie, Perspective | 0 comments

Horse #1 – 2017 Tax Law: The tax law enacted in late December of 2017 is truly a remarkable piece of legislation and a major positive economic force. If you remember our blog in January, we stated that estimates of the amount of capital orphaned overseas was between $500B and $8T. We based our estimate of the impact of bringing that money back into our economy on the lowest estimate, $500B. During the second week of January the announced repatriation of funds exceeded $500B from the first three companies that stated they were bringing funds back to the USA. It makes no difference what companies do with repatriated money – bonuses to employees, stock buyback, or capital expenditures. The fact is that the money will go into our economy and the multiplier effect will magnify the impact of those dollars. The full impact of the new tax law will not be seen until the last quarter of 2018. It is easy to expect that we will exit 2018 and enter 2019 with the economy like a horse in full gallop. That means 2019 will also be an excellent year for the American economy. In turn, the American economy will set the stage for the growth of the world economy. For those of us that remember the growing economy enjoyed after the Reagan tax cuts, this economy is going to be better than that one. 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...

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The Three Horse Economy – Introduction

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

A Three Horse Race: I have never witnessed an occasion where all of the economic forces are positive. The normal condition is that there is a combination of forces, some that are positive and others that are negative economic trends. However, usually one economic force is so strong it overpowers all others. Now in my 46th year of land brokerage, we are experiencing a truly unique situation. There are three forces that are of such significance that it is difficult to know which one will be the dominant. Over the next several weeks we are going to describe those forces and share our opinion as to what we believe will evolve in the American economy over the next 12 months. 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 land....

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Repricing – Financial Markets – Week 7

Posted by on Apr 11, 2018 in Ned Massie, Perspective | 0 comments

Zimbabwe: A small country by the name of Zimbabwe recently came to my attention. It has been reported that Zimbabwe followed the classic socialistic method of government ownership of assets and Quantitative Easing to an extreme. The central bank has created as much money as the government wanted. The result is predictable… absolute economic turmoil. The most fascinating bit of information is that the rate of daily inflation in Zimbabwe is 98%. People there try to get paid daily so they can rush out and buy something with the money before it devalues again. I don’t envision anything like that happening here in the United States, but is is an illustration of the importance of having adults running the government and financial system. One final note about Zimbabwe. The economy of Zimbabwe will ultimately collapse. It could be the straw that breaks the back of the global economy. Venezuela is a great candidate for that distinction, but Zimbabwe is even closer. China would set off a tsunami economic chain reaction. In every case the re-pricing of assets will...

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