Recession Isn’t An Issue For Real Estate Investors With Timing
Posted @ 9:14 pm - Filed under Real Estate Investing, Real Estate Markets, Economy, Investment Lessons, Predictions
A real free market capitalist may not embrace recessions, but they understand them, and would rather treat them for what they are — a cleanup crew taking away the debris slowing the economy down. It’s sometimes a brutal process, but what’s the alternative? A government controlled economy? One can certainly argue our economy isn’t totally free, and they wouldn’t hear a peep from this corner. Still, it’s pretty much the most agile, fluid, and adjustable economy in the world, so I’ll take it.
Let’s assume we’re in a recession now. It’s too early to be positive, but the numbers seem to show a certain velocity toward that end. We could avoid it, but at this point it doesn’t seem likely. My take, based on experience, checking my windsock, and a cracked crystal ball, says it’ll be very short lived, and probably pretty shallow.
As usual, I’ll invoke the BawldGuy Disclaimer: That opinion along with my heavily armed Starbucks card will get us both some coffee and a cookie.
Real estate investors shouldn’t be celebrating, but on the other hand, if indeed we’re in even a short and shallow version, it should lengthen somewhat the ‘window’ I’m constantly talking about. You know the one. It’s allowing us to stay under the radar while we’re buying very cool and performing investment property in selected growth regions. This opportunity happened, in different form, the last recession back in 2001. Investors who paid attention, won, and won big.
This won’t be any different.
Here’s the point of today’s thinking.
As mentioned here before, the Bulls & Bears have been going at it tooth and nail for awhile now. I thought they’d of settled this thing by around Super Bowl time, but nnoooooo. Remember, Bears have a vested interest in the market tanking. They’ve bet big bucks on just that scenario. It’s in their best interests to move Heaven and Earth to make it a reality. They’ve got more than one big problem.
Dr. Ben Bernanke — increases in liquidity/lower interest rates — manufacturers kickin’ butt.
Bernanke has been arming Bulls to the teeth with his many strategic moves, and though many have argued he’s been tardy, his actions have shown fruit. Interest is down. Liquidity is way up. Banks are doing business again. The subprime problem is being slowly leached from the system. All is certainly not well, so don’t break out the rose colored glasses. But the Bears are in serious, serious trouble. And they know it. That’s why they’ve been trying so hard to push the Bull over.
The end is near. They’re doing whatever they can to block the next Bull market. They’re failing. They’ve now failed 4-6 times in the last 90 days by my count.
There’s something very different about the current scenario and what we’ve become accustomed to in previous recessions. This difference is what has me cautiously optimistic. But you weigh the facts and make up your own mind.
Normally, consumers slow their spending, inventories build up, businesses then cut back, which then impacts employment negatively. Manufacturers lay folks off, and transportation (read: shipping) suffers greatly. Before too long, consumers begin to trickle back and the economy slowly begins a return to normalcy. It’s been a predictable and natural ‘cleansing’ process.
The big difference now is that market fraud has been a huge factor. That’s not normal, or hasn’t been since I’ve been around. There’s always some fraud, but not systematically embedded in something as large as the real estate market. That’s clearly a huge difference. It’s being addressed as it should be.
So why am I cautiously optimistic? Because of all the empirical evidence not in any way available in normal pre-recession times. Like what?
Production is rising to meet increasing export and military needs. Exports? Yep, exports. That’s not what you’d call recessionary by anyone’s definition. You can’t export what you’re not making, right? We’re still manufacturing big time.
The DOW Transportation Index is proceeding at great haste to a record high. Yet the DOW Industrials are pretty far from that scenario. One looks at that, and is forced to ask — What do all the shippers out there know that the manufacturers (industrial) don’t know?
Today the DOW Industrials are not nearly as ‘industrial’ as they once were. They’re a whole lot of service industry, which is hardly industrial in nature. The DOW Transportation Index is relatively still a pure breed — they’re made up of, duh, transportation companies. These companies are way too busy shipping stuff every which where for unemployment to become a big problem. All those trucks ain’t drivin’ around the country empty, know what I mean, Verne?
This is a first, at least in my experience. Services are backing off, while Transportation is full speed ahead. The general stock market has seemed to take this into account. Otherwise, this ‘recession’ would already have arrived, and been way scarier than it is, which isn’t scary at all. You can talk all you want to about the different components in play, but when our roads and rails are chock full of goods being shipped from ‘here to there’, our health as an economy is far better than the Bears would have us believe.
And that’s their problem. 
BawldGuy Prediction: Sometime after July 4th, barring some sort of crazy event, the Bears will begin looking for the best hibernation locations. There are simply too many market forces combined with the Fed for them to fight much longer. Unemployment? It’s now ‘up’ to the point college students have been taught for decades is ‘normal’. Around 5%.
That’s how far the mainstream media is willing to go. Tell us what’s been considered normal the last several generations is now scary news.
Don’t believe them, ‘cuz all those trucks out there aren’t bluffin’ — they’re full, and have another load waiting for them to bring back.
This is all good for real estate investors. Interest rates remain historically low, allowing the purchase of income producing properties in growth regions, some who’ve become what I call, ‘destination’ regions. Employers are moving to these places, and expanding if they’re already there. I’ve seen this movie several times, and the real estate investor who moves at this point in the movie? They win.
‘Nuff said.
This entry was posted on Tuesday, April 8th, 2008 at 9:14 pm and is filed under Real Estate Investing, Real Estate Markets, Economy, Investment Lessons, Predictions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.