Six Important Trends to Watch – Week 3

The Federal Reserve:

Earlier this year we expressed concern that The Fed had been too aggressive in their Quantitative Tightening (QT). Apparently, The Fed realized that fact and has announced that they are going to keep interest rates steady for a period of time. There were a variety of economic reasons given for doing so, an inverted yield curve, low inflation, etc. We believe that The Fed will be on hold from now until after November of 2020 because The Fed does not want to be seen as attempting to influence politics.

The fact that The Fed has indicated that they are on hold for 2019 has allowed interest rates to decline, and that in turn has stimulated the real estate industry. This very positive economic force will probably last until the end of 2020.

However, after the 2020 election and two years of stability, The Fed will probably once again start raising interest rates and attempt to reduce the assets on their balance sheet. It is critical for the future health of the United States economy that The Fed diminish their involvement in the financial markets by reducing the amount of financial assets on their balance sheet.

But higher interest rates mean lower real estate values. Therefore, we believe the next 12 – 16 months is the peak of the real estate market for this economic cycle. Anyone interested in selling land should see this as an attractive time to sell it, not wait until The Fed again starts their QT.

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.