Well, a couple of weeks ago, the Federal Reserve declared the war on inflation has been won and lowered interest rates. However, the divide between Fed economists and your wallet may be a different story. Yes, just about everyone can agree that the annual rate of growth in consumer prices is now muted. But nothing the central bank does can erase the roughly 20% jump in the cost of living we’ve experienced the last four years.
This disconnect may well explain why the consumer confidence index saw the largest drop since September of 2021. More on this below but first…
I wouldn’t be much of a father or business partner if I didn’t ring the bell and toot the horn, but Nick was named amongst the San Diego Business Journal’s Brokers of the Year finalists!
In celebration of this award, we’re going to fill this month’s letter with charts (typically Nick’s Numbers) to tell this month’s story (Oh don’t worry there’s still a story at the end!).
Whatever you thought of the presidential debate last month, the $2 trillion deficit and $35 trillion of national debt was not on the agenda. When (not if) there is a recession, those numbers will get worse.
Vacation homes (Airbnb), RVs, boats and Rolex watches tend to be associated with wealthy real estate investors. They also tend to be associated with the hubris peaks ending an expansion. After that, comes the collapse of demand for those toys and the inevitable recession.
BTW – did you ever notice that on watch ads, the watch is always set at 10:10. That’s because it represents a smile! But nobody can explain to me why digital watch ads have the watch set at 10:10!
I know I harp on jobs and their direct effect on commercial real estate. But despite a little uptick in August, the long-term trend is still cooling.
Individual (small) investors have started to pull back (but not much) and are purchasing less in this higher interest rate environment. That’s the first decline since February 2012.
Now here are two interesting charts to compare. First are interest rates vs. sales volume. You will note it can take from 1 ½ to 3 ½ years for commercial sales volume to pick up following a rate cut.
The second chart shows loan defaults compared to office net rental income. As can be expected –– when rent goes down defaults increase.
I was once at a presentation by an economist and he opened by saying, “Rates are going to come down. Then they are going to go back up. Then they will come back down. What I can’t tell you is when, how much or for how long.” As always, I hope you enjoy the story…
Heaven’s Policy Change
It was getting a little crowded in Heaven, so God decided to change the admittance policy.
The new law was that in order to get into Heaven, you had to have a really bad day on the day that you died.
The policy would go into effect at noon the next day. So, the next day at 12:01 the first person came to the gates of Heaven. It was Doug Emhoff, the Vice President’s husband.
The angel at the gate, remembering the new policy, promptly asked the man,
“Before I let you in, I need you to tell me how your day was going when you died.”
“No problem,” the man said. “I came home to my 25th-floor hotel room on my lunch hour and caught my wife having an affair. My wife was naked, but her lover was nowhere in sight.
So, I started to search the entire apartment. Just as I was about to give up, I happened to glance out onto the balcony and noticed there was a man hanging off the edge by his fingertips! The nerve of that guy! Well, I ran out onto the balcony and stomped on his fingers until he fell to the ground. But wouldn’t you know it, he landed in some trees and bushes broke his fall and he didn’t die.
This ticked me off even more. In a rage, I went back inside to get the first heavy thing I could get my hands on to throw at him. Oddly enough, the first thing I thought of was the refrigerator. I unplugged it, pushed it out onto the balcony, and tipped it over the side. It dropped 25 stories and crushed him! The excitement of the moment was so great that I had a heart attack and died instantly.”
The angel sat back and thought a moment. Technically, the guy did have a bad day. It was a crime of passion. So, the angel announced, “OK, sir. Welcome to the Kingdom of Heaven,” and let him in.
A few seconds later the next guy came up. To the angel’s surprise, it was Donald Trump.
“Mr. Trump, before I can let you in, I need to hear about what your day was like when you died.”
Trump said, “No problem. But you’re not going to believe this. I was on the balcony of my 26th floor hotel room doing my daily exercises. I had been under a lot of pressure, so I was really pushing hard to relieve my stress. I guess I got a little carried away, slipped, and accidentally fell over the side! Luckily, I was able to catch myself by the fingertips on the balcony below mine.
But all of a sudden, this crazy man comes running out of his apartment, starts cussing, and stomps on my fingers. Well, of course I fell. I hit some trees and bushes at the bottom, which broke my fall, so I didn’t die right away.
As I’m lying there face up on the ground, unable to move and in excruciating pain, I see this guy push his refrigerator of all things off the balcony. It falls the 25 floors and lands on of me, killing me.”
The angel is quietly laughing to himself as Trump finishes his story.
“I could get used to this new policy,” he thinks to himself.
“Very well,” the angel announces. “Welcome to the Kingdom of Heaven,” and he lets Trump enter.
A few seconds later, Joe Biden comes up to the gate. The angel is almost too shocked to speak.
Thoughts of assassination and war pour through the angel’s head.
Finally, he says, “Mr. President, please tell me what it was like the day you died.”
Joe says, “OK, picture this. I’m naked, inside a refrigerator…”
