Politicians and bureaucrats are duking it out in the wake of the most controversial election since Bush v Gore in 2000 …
… which was almost as bad as the election of 1876.
Yes, as disconcerting as all this current controversy is, this isn’t the first time Americans have anguished through a contested election.
And if you’re outraged at the arguably credible allegations of voter fraud and backstage shenanigans by well-organized political “machines” …
… here’s another news flash: it’s nothing new either.
But sitting here in 2020, we’re guessing you wish you bought real estate in 1876, 1912 and 2000 … in spite of the tense controversy and uncertainty.
That’s because the republic didn’t end … and neither did the universal and timeless need for real estate.
Don’t get us wrong, we’re not saying these issues aren’t important and shouldn’t be discussed, debated, investigated and litigated.
But if this is your first rodeo, you might get so caught up in the drama you fail to fight your own battles for personal peace and prosperity.
Yes, we should all do our part for the betterment of the world.
But like those airplane flights we’re getting back on, the first order of business in a crisis is to put on your own mask … the kind which actually helps you breathe.
You can’t solve the world’s problems until you solve yours. And the odds of the world solving your problems are slim. You’re on your own.
But that’s not as harsh and lonely as it seems. In fact, the best investors we know belong to successful tribes of smart, hardworking, cooperative people.
So societies of all types are made up of individuals. And when each individual is personally prosperous, then society overall is prosperous.
Everyone seems to agree with this. The sometimes contentious debate is about equality of opportunity and results. It’s far more complex than it seems.
But while warring political factions push their plan for promoting prosperity for everyone … it’s perhaps best to focus on things YOU can control.
So we watch the financial waves, economic weather, and political horizon for clues about how to position ourselves to capture opportunity and mitigate risk.
So as captivating as it is, political drama is far less relevant to the business of investing than the underlying financial and economic currents.
Regardless of the election outcome, lockdown ramifications are likely to continue cascading through the economy, financial system, and currency.
So deciding the captain of the Titanic is interesting. Getting into the lifeboats with our vests and surviving seems a WHOLE lot more important.
Attom Data Solutions just announced U.S. foreclosure filings jumped 20% from last month … in spite of foreclosure moratoriums still in effect in many places.
Depending on whether appraisers adjust for the effect of distress sales, the ripple effect could decrease appraised values and erode equity.
Of course, real estate isn’t an asset class, and local economies are all very different, so distress will likely vary from market to market.
According to the report, foreclosure rates are currently highest in South Carolina, Nebraska and Alabama.
Meanwhile, according to the Fed’s recently released Financial Stability Report, the U.S. still faces a possible wave of defaults in debt markets.
Remember, it was sub-prime defaults in the mortgage-baked-securities debt markets which triggered the 2008 financial crisis.
Defaults can light the fuse for a financial system implosion.
This doesn’t mean it will happen. But no one paying attention should be surprised if it does.
After all, foreclosures and debt defaults are exactly what you’d expect when lockdowns of the economy disrupt incomes and payments stop.
You may recall, when the lockdowns initially hit, this is precisely what all our smart friends told us would happen. Now it’s here.
Hopefully, you’ve been among the group of forward-looking investors wise enough to pay attention and prepare …
… pruning poor performers from your portfolio …
… tightening up operations and locking in your best tenants …
… restructuring financing for the long haul (long-term fixed-rate) …
… extracting equity while it’s still there …
… and aggregating cash of your own and/or through your investors … because distress usually means bargains, but often requires cash.
If you’re late to the party, there’s still time, but maybe not as much. Like a snowball, these things tend to pick up speed.
However, the probable 2021 crisis may not be an exact replay of 2008. So we’re not sure we’d plan on that. This is a new game.
This time, the Fed seems much more aware and proactive than 2008, when they were clearly in denial.
The Fed entered the 2008 crisis with a relatively modest $800 billion on its balance sheet … which had slowly grown over many years.
Politicians, pundits and the public had never seen the kind of expansion which eventually took the Fed’s balance sheet to $4.5 trillion … an unheard of 560% growth in just a few years.
But that’s old news. Today, there’s MUCH less resistance to Fed easing. In fact, the Fed added nearly $4 trillion in just a few months when this crisis hit.
Also, today there’s a growing belief in Modern Monetary Theory.
MMT essentially says the Fed can print as much currency as it wants, and it doesn’t matter … at least not until CPI inflation is hot. And it’s not.
At least it’s aptly named “theory” … and any use of it could well be deemed an “experiment” whose results and ramifications are uncertain. Popcorn, please.
MMT is something we’re both studying and watching. Never a dull moment.
It seems to us the pandemic and resulting economic crisis has provided popular cover for substantial debt, deficits, and currency creation.
How will it end?
No one knows. So we’ll continue to talk with smart people who have diverse opinions, then watch for clues in the news and leading indicators.
One thing we’re SURE of …
Twenty years from now there will be people and they’ll need homes, food, energy and healthcare. Products will move through distribution centers to consumers.
There will probably be government, military and tech. And all kinds of small businesses providing support services to people, businesses and governments.
In other words, the world will still be here in terms of real estate and commerce.
We’re guessing folks who acquire real estate today and manage to hold onto it over the next 20-30 years will be happy they did.
Political battles, economic booms and busts, hot speculations … even financial systems, technologies, and pop culture … come and go.
What endures is that which is real and essential to human existence.
When you invest in those real and essential things with an eye toward the long game, you’re likely to finish well.
Yes, we live in crazy times. Pick your battles wisely.
Until next time … good investing!