The Forces that Will Impact the American Economy and Therefore, the Land Market in 2019 – Week 11

Energy Market: Oil: In the spring of 2018, we suggested that the supply of oil was much greater than demand. Some readers questioned our statement as the cost of oil and therefore gasoline increased during the year. However, that cycle has peaked and oil is now back in the mid $40s per barrel. Here are the facts you really need to focus on: Inexpensive oil and gasoline is a positive for the American economy. U.S. oil production is now so dominant in the world that it gives the USA additional economic security we have not had for decades. The USA is the only oil producer able to operate at a profit if the price of a barrel of oil is around $40-$45. Low energy costs equal economic growth and security. All good. We expect the cost of oil to rise sharply. But the world still has access to all the oil it needs. Price increases will be the result of price...

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The Forces That Will Impact the American Economy, and Therefore the Land Market in 2019 – Week 10

Government Debt: A member of the “Economic Growth Party”, I prefer politicians that want to grow the size of the economic pie. I also believe the cruelest form of politics is making promises that cannot be kept. Unfortunately, in 2019 politicians are focused on obtaining power, as opposed to solving problems. Even if the USA government confiscated 100% of all the income of households in the top 2% category of household income, it would not provide enough revenue to fund all of the promises that are being made by the Democrats in 2019. Government debt has doubled over the last 10 years. If The Fed is successful at getting interest rates back to normal there is literally not enough tax revenue to pay the interest and meet our other obligations. Something is going to give and the process will be ugly. I am aware of wealthy individuals whose estate planning now includes moving assets out of their name to the next several generations so that when the “day of reckoning comes” their family is secure. What is your plan to preserve your...

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The Forces That Will Impact the American Economy and Therefore, the Land Market in 2019 – Week 9

Garbage: Government bureaucrats prosper by building their empire. The more regulations they create, the more employees are needed, the more responsibility they have, the higher their income. We witness that empire building in the environmental regulation arena constantly. Well intentioned but self-serving, it is not a good combination. We Americans are almost drowning in our garbage. But instead of focusing on that “growing” severe problem, the regulatory bureaucrats prefer to issue regulations that diminish the use of land for the production of food, housing, etc. Does that sound like a long-term, healthy strategy to...

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The Forces that Will Impact the American Economy and Therefore, the Land Market in 2019 – Week 8

Shadow Banking: Shadow Banking almost always ends up badly. Think of GE Capital’s almost total destruction of the American industrial icon called GE. Square, a tech company, has become a “shadow bank” with a subsidiary called Square Capital which offers loans to small businesses. In the last 12 months, they have made approximately 200,000 small business loans, totaling $405M in credit. Using algorithms instead of bankers, successful borrowers have enjoyed this experience, as long as they can get money. Unsuccessful borrowers have lamented about not being able to actually talk to a banker to find out why their loan application failed. Square has “off-loaded” their risk to pension funds, and other investors. Does that sound familiar to you? This is another sign that our economic cycle has peaked. Worry about the ripple...

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The Forces that Will Impact the American Economy and Therefore, the Land Market in 2019 – Week 7

Brexit: This drama is scheduled to end around March 29th, 2019. Britain’s Prime Minister May actually voted against Brexit and has negotiated in a manner consistent with her vote. The European leaders are trying to drive a very hard bargain because of the other cracks that are appearing in their unsustainable union. If Great Britain actually leaves, Great Britain will thrive economically. However, the splintering of the Eurozone will accelerate. Even if Great Britain stayed, the Eurozone will fail. The ripple effects of the splintering of the Eurozone will have significant economic impacts around the...

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The Forces that Will Impact the American Economy and Therefore, the Land Market in 2019 – Week 6

The proper term for the country we call China is, “The World’s Danger Zone”: The so-called “China Miracle” is just growth funded by out of control government debt in their economy. Unsustainable actions continue until they do not. This chronic house of cards will fail and the economic impact will be felt globally, the only question is when. There are two terms you need to add to your vocabulary: LGFV (Local Government Financing Vehicles). These are part of China’s shadow banking system. Typical of Communist countries, LFGV investments were made because of central government instructions, not because they were good investments. FACE – Finally, a leader of the western world stood up to the Chinese and called them out for their illegal and constant theft of intellectual property, as well as many other unfair trade practices. Given the fact that the Chinese have to “Save Face”, Dictator for Life Xi, is in a really bad spot. If he makes a deal with the U.S.A., he will “Lose Face”. If he does not make a deal with the U.S.A., the Chinese economy will crater. To me, the highest probability is that Xi will be deposed and a new Chinese leader makes a deal with the U.S.A. The question then becomes, will the Chinese line up to our agreement? If so, it will be the first time. Because of the size of China’s economy, turmoil there ripples around the...

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