In my July letter, I linked to some extra credit reading ZeroHedge.com about the Fed overstating U.S. jobs by about 800,000. Most thought, this just cannot be possible. Well, lo and behold this month it finally came out to be true. My biggest problem isn’t that we were lied to (rounding errors aren’t that big!), it is that I have always said jobs are the single best predictor of Commercial Real Estate health. These numbers just took a big dump on that news.
Investors are carefully watching for signs to see if the consumer is under pressure, as the Fed continues to hold off on a rate cut (maybe this month?).
There are troubling signs out there. McDonald’s warned that consumers were “feeling the pinch” with its most recent earnings report which saw some store sales fall 1%. U.S. store closings have surpassed openings due to a surge of bankruptcy filings. Locally, we have seen the results with Rubio’s, Buca di Beppo and Big Lots filing for bankruptcy. Retailers are feeling the squeeze from slowing sales, higher costs and less accommodating lenders and rates. Plus, the temporary lifeline of pandemic money is finally running out and weak operators are being thinned from the herd.
Even the Magic Kingdom is experiencing the squeeze. Although revenue is up (of course it is – they raised prices!), their net profit is down 6%. I recently saw a study by Lending Tree that shocked me, 24% of Disney visitors and 45% of parents who visit Disney have gone into debt to cover the costs of their trip. The survey found on average, parents who take their young children on a Disney vacation end up with $1,983 in Disney-related debt! I think Disney is going to lose its “magic” if customers begin to hold their ground against higher prices.
While on the topic of inflation, I recently re-read this quote from economist Milton Friedman, “Consumers don’t produce inflation. Producers don’t produce inflation. Inflation is produced only by too much government spending and too much government creation of money, and nothing else.”
Historically, commercial real estate has been a good investment and a hedge against inflation. Income-producing commercial real estate has produced positive long-term returns that have grown at 2.02 times the rate of inflation over the past 50 years. But you may say, real estate is cyclical, so it depends (What if I bought at the top of the market?). This is true, but only partially. On publicly held real estate (REITs) returns during increasing return times were 399% higher than inflation and during decreasing return times they were still 151% higher than inflation.
Nick’s Numbers
This month my chart shows the uptick in consumers missing payments on credit cards and car loans. This is typically an early indicator of stress in the marketplace.
If you would like an analysis of your properties’ value or discuss what you should be doing concerning interest rates or inflation and their impacts on your business, tenants, or property, I’d be happy to talk. (Nick Zech, 858-232-2100, nzech@cdccommerical.com).
Speaking of missing payments and lenders. I just saw a podcast with Willy Walker of Walker & Dunlop in which they explained that banks making a loan today have to reserve 100% for risk (so have deposits equal to loans – not very attractive). However, if the bank loans to an alternative non-bank bank money lender, then they only have to reserve 20%. This means that if you are looking for a loan you may need to be sourcing it from a mortgage lender, a foreign lender/bank or insurance company. Also, if you remember it was the non-bank banks, also called “shadow banks,” that brought us the 2008 Great Recession.
As we enter the final inning of our every four-year process we call democracy, I am going to give you another extra credit reading project Thirty-Thousand.org. When our founders wrote the Constitution, they intended our representation to grow with the nation’s population. In the Constitution, it states we should have not more than one representative per 30,000 inhabitants. In the Bill of Rights, it limited the number to 50,000. Somehow in 1910 our “representatives” capped the number at 435 which on average is one for every 760,000! I hear the argument that to have 7-12,000 representatives is unmanageable but that was before we had stadiums holding 70,000 with giant screen TVs, before Zoom, and before cell phones and “X.” To have more representatives will make them more like city council members and certainly harder to buy off with dark money. It would certainly be a way to manifest the intent of our forefathers, who I can only imagine are rolling over in their graves.
Now before I get “canceled,” I want you to understand that I know people who want to share their political views with you, almost never want you to share yours with them. But I also know our future depends on us being leaders or problem solvers. Hope you enjoy the story…
545 vs 300,000,000 People – By Charlie Reese
Politicians are the only people in the world who create problems and then campaign against them.
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?
You and I don’t propose a federal budget. The President does.
You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does.
You and I don’t write the tax code, Congress does.
You and I don’t set fiscal policy, Congress does.
You and I don’t control monetary policy, the Federal Reserve does.
One hundred senators, 435 congressmen, one President, and nine Supreme Court justices equates to 545 human beings out of the 300 million who are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a President to do anything. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he or she votes.
Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The President can only propose a budget. He cannot force Congress to accept it.
The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the Speaker of the House? Mike Johnson. He is the leader of the majority party. He and fellow House members, not the President, can approve any budget they want. If the President vetoes it, they can pass it over his veto if they agree to.
It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.
If the tax code is unfair, it’s because they want it unfair.
If the budget is in the red, it’s because they want it in the red.
If they do not receive Social Security but are on an elite retirement plan not available to the people, it’s because they want it that way.
There are no insoluble government problems.
Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there are disembodied mystical forces like “the economy,” “inflation,” or “politics” that prevent them from doing what they take an oath to do.
Those 545 people, and they alone, are responsible.
They, and they alone, have the power.
They, and they alone, should be held accountable by the people who are their bosses.
Provided the voters have the gumption to manage their own employees…
We should vote all of them out of office and clean up their mess!
Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.
