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

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 again…BRILLIANT.