Market Perspective

2017 – A Year of Turbulence “But the Good Times Are Coming” – Week 11

Posted by on Apr 12, 2017 in Ned Massie, Perspective | 0 comments

Rising Interest Rates – Commercial Real Estate As mortgage rates increase, so will Cap Rates. Cap Rate is slang for capitalization rate, the interest rate at which an investor is willing to apply to an income stream from an income producing property to determine the value of that building. Since commercial real estate buildings are built on land, there is an indirect impact on the land market. However, there are other forces in the marketplace that are even more important to retailers and users of retail or commercial buildings, such as household incomes, traffic accounts, etc. A modest increase of interest rates over a period of time will probably not cause a severe dislocation in the market, but it will have an impact. The most serious impact will be on existing buildings that are highly...

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2017 – A Year of Turbulence But “The Good Times Are Coming”! – Week 10

Posted by on Apr 6, 2017 in Ned Massie, Perspective | 0 comments

Rising Interest Rates – The Residential Market The residential market gets into balance by the mortgage payment. As interest rates rise, the same monthly payment allows the borrower to obtain a smaller loan. So the home buyer will find that their monthly payment will qualify them for a lower mortgage which means they need to buy a lower priced home. We have seen the front end of this in the residential market. It is hard to measure how much of an impact it will have because we don’t know how quickly interest rates will rise. My guess is they will rise slowly. 2017 will be turbulent because the increases in mortgage rates will start this year. The last half of 2018 should see a strong recovering economy which will mean that competition for employees will drive up incomes, which means the residential market will ultimately get back in balance in 2019. The transitions described above probably means a slower new home market in some segments during 2017 and the first half of 2018. If mortgage rates go up gradually enough, then the impact on residential land will be less than if interest rates...

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2017- A Year of Turbulence “But The Good Times Are Coming” – Week 9

Posted by on Mar 30, 2017 in Ned Massie, Perspective | 0 comments

Interest Rates “Reverting to Mean” The phrase “reverting to mean” simply expresses the fact that over the long-term, interest rates are a certain average rate. “Mean” means “average”. The financial types like to talk about things reverting to mean, which is normal in a cycle where something gets out of line and then comes back to what is the mean, or average, or norm. Central banks around the world have been holding down interest rates. The Federal Reserve finally terminated QE, Quantitative Easing, and started talking about interest rates increasing. Capitalism is the best system for allocating resources. However, Capitalism does not function when interest rates are at zero. There are just way too many market distortions. However, as the Fed raises interest rates (or the market forces them to do so), those rising rates will impact the real estate segment of the economy. In the following weeks we will attempt to look at each of the segments of the real estate economy in order to understand how rising interest rates will probably impact that segment, and ultimately the land...

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2017 – A Year of Turbulence But “The Good Times Are Coming” – Week 8

Posted by on Mar 23, 2017 in Ned Massie, Perspective | 0 comments

Flashpoint 4: European Economy Will 2017 be the year that the European economy has its day of reckoning? Here are the pieces that are falling into place: Brexit – which was not expected to pass in June of 2016 but did. Pundits said that the British look stupid. Keep breathing, the British will look brilliant. Italian banks – the Italian government has finally acknowledged that they are going to have to bail out their banks. There are multiple countries that have major banks that are in distress, as the banks in Europe were not forced to clean up their balance sheets, as the banks in America did years ago. Quantitative Easing is now $150 Billion per month (ECB and Japan). Because the ECB cannot buy government bonds, they are buying bonds of private companies. We are now seeing companies that are going to Europe in order to issue bonds knowing that the ECB is willing to buy them at a ridiculously low interest rate and amazing durations in order to try to influence the European interest rates. This is a market distortion of $1.8 Trillion per year. Social unrest because of mass immigration – Everyone is interested in seeing people that are in distress receive what they need in terms of care. At the same time, importing millions of “immigrants” who have a cultural, educational, social mores, and religious background different than the countries where they are going, one has to expect that there is going to be turmoil. This threat is heightened by ISIS using it as an opportunity to infiltrate into Europe to create terrorist events. Euro – Sooner or later, the market will recognize that the euro is worth less than the Dollar. When that comes about, European manufacturers and exporters will have an advantage over the United States. The real question is if the distorted European economy can hold together during the descent. Logic says...

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2017 – A Year of Turbulence But “The Good Times Are Coming” – Week 7

Posted by on Mar 9, 2017 in Ned Massie, Perspective | 0 comments

Flash Point 3: Turkey Located in the turbulent Middle East, a bridge between Christian Europe and largely Muslim Middle East countries, Turkey has for decades prospered because of its secular government. The current Prime Minister, Mr. Erdogan, a devout Muslim, has been consolidating the power into a typical Middle East dictatorship. In July of 2016, he used a “coup” attempt to further consolidate his power driving out of business and professions anyone that he thought was in opposition to his policies while using the puppet legislature to enhance his power. He is headed towards absolute power, if not already there. As a result, the Turkish economy is in the process of collapsing. Their GPD has declined for the first time in years. Their currency is in rapid descent around the world. The ripple effects of Turkey’s collapse will work their way throughout the global economy in the second half of...

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2017 – A Year of Turbulence But “The Good Times Are Coming” – Week 6

Posted by on Mar 9, 2017 in Ned Massie, Perspective | 0 comments

Flash Point 2: Venezuela In the first half of the 1900s, Venezuela was a wealthy country that: Exported food because it produced surplus; Had a vibrant and diverse manufacturing base; Enjoyed huge petroleum deposits, which they were beginning to export; Had low inflation and a stable currency. Today, after 20 years of Socialism, Venezuela: Cannot feed its own people. It actually needs to import food, which it cannot do currently, so its population is starving. The petroleum industry still has enormous deposits but the state run organization that is in charge of production has not invested in modern technology or maintenance and their output is in severe decline. The inflation rate for the year 2016 was the highest in the world, representing almost 20% per month, or 240% per year. Its currency, the Bolivar, is approaching worthlessness. Russia now owns 50% of the state organization that controls the petroleum deposits and production. China has lent Venezuela enormous sums of money in an agreement to obtain petroleum. Grocery stores have no food on the shelves, hospitals have no medicines, the population is literally starving and rioting in the streets, and its young people, as well as anyone else that has the means to do so, is exiting the country. The only question is when will the final collapse occur? The ripple effects will be felt...

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