Zero Bound Interest Rates, The Zirp Dimension, Stagflation and #Multifamily
Filed under: Multifamily Investments, The Economy and Current Affairs, Value Investor's Guide to Apartment Buildings
Zero interest rates and apartment building investment.
First my condolences to Bill Gross on the loss of his brother-in-law. Reading his piece in PIMCO’s latest Investment Outlook it is clear that the world’s biggest bond manager is running out of places to generate returns for their investors and by extension this applies to all income investors, especially retired people trying to live on interest income. For those would like to retire soon you may have to delay that decision for “an extended period’ as Edward Harrison over at Credit Writedowns put it in Permanent Zero and Personal Interest Income.
Gross’ points out that the Fed’s zero interest rate policy (ZIRP) which they have just announced to maintain through 2014 and their defacto though opaque continuation of quantitative easing (QE2.5 as he tweeted it) threaten to take us into another dimension where their policies have the opposite effect of their intentions.
“Much like the laws of physics change from the world of Newtonian large objects to the world of quantum Einsteinian dynamics, so too might low interest rates at the zero-bound reorient previously held models that justified the stimulative effects of lower and lower yields on asset prices and the real economy.” – Bill Gross
His bullet points:
- Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.
- Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation.
- We can’t put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering and refusing to extend maturities and duration.
For more views on this and Europe too see also Entering the Debt Dimension from Phil’s Picks on the Phil’s Stock World Blog.
What does this mean for Multifamily?
The Zirp Dimension leads to Stagflation where economic growth remains anemic yet prices on essential Read more
Find the freight trains in your life and get on them instead of in front of them.- Barry Sternlicht Video via @Michael_MBA
Filed under: Commercial Real Estate, Multifamily Design & Development, Multifamily Investments, The Economy and Current Affairs
Great advice from Barry Sternlicht plus much, much more on real estate, investment, capital, leadership, opportunity, Europe, China while speaking at the Schack real estate conference. He is one very smart guy while being personable and humble, a rare but valuable combination. Reminds me a bit of my virtual mentor Tom Barrack, and not just because of the haircut! Barry even mentions wanting to learn how to surf, something Tom could definitely help with.
Here’s the link to the video: Barry Sternlicht at Schack RE Conference For more great video from the conference Read more
Hoisington Quarterly Review and Outlook “Recession in 2012″.
Filed under: Multifamily Investments, The Economy and Current Affairs
Housington Investment Management runs about $4B in fixed income institutional money so they pay very close attention to the economy, government as well as fiscal and monetary policy. In fact Dr. Lacy Hunt, co-author of the report, is one of Mauldin’s most highly regarded economists. Here’s the exec sum (see the whole article at http://bit.ly/wM9DIY):
High Debt Leads to Recession
As the U.S. economy enters 2012, the gross government debt to GDP ratio stands near 100% (Chart 1). Nominal GDP in the fourth quarter was an estimated $15.3 trillion, approximately equal to debt outstanding by the federal government. In an exhaustive historical study of high debt level economies around the world, (National Bureau of Economic Research Working Paper No. 15639 of January 2010, Growth in the Time of Debt), Professors Kenneth Rogoff and Carmen Reinhart [Again with those two!] econometrically demonstrated that when a country’s gross government debt rises above 90% of GDP, “the median growth rates fall by one percent, and Read more
Is a Gold Standard the Answer to Our Monetary Crack-Up?
My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”. 
I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:
With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.
The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways. Debt creation can be reduced and austerity can be imposed to make room for Read more
Credit Rate Spreads as Indicators
Vince Farrell of Soleil Securities Group sent me his take on what key credit spreads are indicating about the financial landscape and economic prospects. For a little background, a ‘spread’ is trader talk for the difference between two financial instruments, in this case the interest rates offered different debt instruments. As with most spreads these have a historical ‘normal’ range and their trend away from or back towards normal are used to measure optimism or pessimism in hearts and minds of those who create or invest in the referenced instruments.
Vince finds that while most of the credit spreads he follows are wide by historical norms, they are narrowing and the trends are positive for the credit markets and eventually the economy. Here are his comments: Read more
Why buy Multifamily in ’09?
Filed under: Multifamily Investments, The Economy and Current Affairs, Value Investor's Guide to Apartment Buildings
As I sit here looking out at the snow while I’m taking time to review and update my goals for the year there are stars aligning to make the new year a positive one. Especially if you are looking for alternatives for your investment and retirement money. The stock market hasn’t been good to us (I look at my account statement from between my fingers!) and the prognosis for the next year or two isn’t much better.
In contrast there are a number of reasons to consider owning multifamily properties, specifically apartment complexes with more than 100 units. Before I go into the reasons why now is a good time let me first be clear about what I’m NOT recommending, the landlording business. The reason to focus on properties with more than 100 units is that they are large enough to support both professional management and professional maintenance; most likely having both onsite full time if not living there. As an owner of this type of property your job is to review the management reports and manage the managers, not unclog toilets or take phone calls from tenants. Read more
5 signs we’re not heading into Depression 2.0
In a series of emails with Vince Farrell, CIO of Soleill Securities we were discussing his comments on CNBC about the contrast between 1929 and now. His point was that the policy decisions being made now are the correct ones and that there are a number of protections in place, as a result of the depression, that will prevent this recession from becoming a depression.
Briefly here are Vince’s points that are both necessary steps to preventing depression and signs of hope for the future:
On World Trade-
Then: Smoot Hawley Tariffs enacted, result, world trade falls by two-thirds (66%!)
Now: During the last G7 meeting, members agree to “do no harm” in terms of protectionism. Read more
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