Ignore the National Talking Heads

dennisfassett.com

“You will never find a more wretched hive of scum and villainy.”

~ Obi Wan Kenobi

I’ll bet you thought that old Obi Wan was talking about Mos Eisley, right?

Well, he wasn’t. It’s a little known fact that when he said that, he was actually referring to real estate investing in the City of Detroit.

Shocking?

You wouldn’t think so if you’ve been here.

Not only have I been to Detroit, I live here. Believe me, when I say that the parts of Detroit that I’ll actually venture into make the Mos Eisley Cantina look like a day care center.

And that’s on a good day.

Do not Enter – for Real

This is me being completely serious. As a heart attack. Stay away – for your own physical safety and financial well-being.

Trust me on this. There are areas on the East Side that the cops won’t even go in to.

I bring this up because of the brain donors at CNNMoney.com.

Once again, one of their ilk stumbled upon a mere speck of information and then wildly extrapolated that microscopic speck into what they consider actionable intelligence.

But in fact, it ended up neither actionable nor intelligent. But because they’re CNN, they didn’t notice.

The piece I’m referring to is titled: “Want to make money as a landlord? Try Detroit.”

Don’t Fight the Tape

 

dennisfassett.com

We had this old saying back in my investment banking days:

“Don’t fight the tape.”

It was a phrase that we used in finance that basically cautioned you not to bet or trade against the trend in the markets.

It was a REALLY old saying because the term “tape” referred to the ticker tape machine that the old timers used to have on their desks to get stock prices delivered to them before AOL, E-Trade, and iPhones.

The crazy thing was, we rolled our eyes and used the term a ton back then because there always seemed to be some bonehead clown who swore that he had developed a “system” or “strategy” that would beat the market.

The streets were littered with the carcasses of these guys, because the market chewed them up and spit them out without skipping a beat or even noticing them.

My own terrible experience with simultaneous deflation AND inflation

I read a great post today about the impact high debt levels are having around the world. It’s from the Sovereign Man blog at sovereignman.com. I highly recommend that you subscribe. His perspective is unique and definitely thought provoking. I’m reposting it here with full attribution to the author, Simon Black….

simultaneous deflation AND inflation

September 10, 2015

Santiago, Chile

Yesterday was a pretty big day.

First (and perhaps most importantly) my post-Italy no carb detox came to an end. Hooray for that.

Second, I signed the papers and closed on a new apartment here in Santiago.

It’s a great time to be buying in Chile for anyone spending US dollars. The peso is weak, as is the economy. So asset prices are very cheap.

Simultaneously, by any objective metric, the US dollar is enormously overvalued. So I ‘sold’ what was overvalued and bought what was undervalued.

It was a great deal– it’s a spacious penthouse flat encompassing an entire floor in the nicest part of town, all for less than what a down payment would cost me in the US or Europe.

Hell, given the million-dollar price tag for some parking spots in New York City now, you could have several of my apartments for that much.

Oh No – Not Another Google-Research Apartment Forecast!

It’s a race I guess.

Every time a quarter end gets close, all the economists start falling all over each other to be first out with their forecast for the next quarter. Having studied Econ myself in college, the one thing I’d really like to see is a scoreboard that shows how accurate these past forecasts are.

But that’ll never happen.

Because as soon as people saw how consistently worthless the forecasts are, and how they have literally zero correlation with reality, then the whole field of Econ would implode just like the American banking system is about to. And good riddance I would say.

So past accuracy notwithstanding (and apparently irrelevant), we have yet another forecast out.

This one was done by Marcus and Millichap, and they included their forecasts for 39 different metro areas in the US.

Ok – I decided to bite. I’m active in the apartment business here in metro Detroit. I own a couple of buildings, manage one myself, and I’m looking for more units to buy. I’m certainly no total “market expert” because this market is huge. But I am pretty knowledgeable. So I downloaded the “Detroit Metro Area Market Update”.

It only took one glance to see that they have no clue about this area.

Their headline read: “GENTRIFICATION EFFORTS WILL BOOST RENTER DEMAND”

And they went on to write: “The revitalization of downtown will lure major companies to the urban core, sparking long-term demand for rental units in the area, while lucrative concessions will bode well for the suburbs.”

My first thought was to check the date on the article to find out when it was written.

I don’t know about you, but I’ve been hearing about how downtown Detroit is ready to explode in population and popularity (and NOT Molotov cocktails) since I worked (but didn’t live) down there in 1986. And then again when Dennis Archer was elected mayor in 1994. And then again when Kweazy Kilpatrick was elected in 2002.

And now we’re hearing it all over again with Bing.

But just because Blue Cross and Quicken Loans have moved some people down there semi-recently doesn’t mean they’re going to live down there too.

Did Compuware cause a huge surge in rental demand when they moved downtown? Uh, no.

Do you remember back when that little company called General Motors moved their entire HQ (and then some) into the Ren Cen back in the 90’s? Did that cause a housing and rental surge?

Yes actually that one did. In Grosse Pointe.

Which makes my point that these forecasts aren’t worth horsesh*t.

This one in particular reads like it was written by someone who used google searches as their primary source. Especially some of their employment forecast numbers.

You can get your own copy of this forecast for any of the 39 Metro Areas by visiting this link. Registration is required. https://secure.marcusmillichap.com/SignIn.aspx?ReturnUrl=http%3a%2f%2fwww.marcusmillichap.com%2fservices%2fresearch%2freports%2fdefault.aspx%3ftab%3d1

Read it at your own risk. Or if you’d like a chuckle.

I’d be interested to hear your thoughts on this.

 

Multi-Family Economic Forecasts: Smoking Crack or Inside Track?

The real estate investment services firm Marcus and Millichap came out with an interesting statement last week.

The headline that their chief forecaster, Hessam Nadji, used was “Recovery Threatened, But This Is Not 2008”.

And he finished his overall summary by writing “The downgrade of the U.S. government’s credit rating by S&P has sent global stock markets into a frenzy, posing a threat to the already fragile U.S. economic recovery. However, there are stark differences between the current economic situation and the crisis in 2008. Amid renewed economic uncertainty, commercial real estate offers compelling investment opportunities.”

In the body of his piece he goes into detail and gives a litany of reasons why “this is not 2008”. And by that he means it’s not as bad as 2008 was. Surprisingly, he does identify the major issues impacting the economy right now, including

  • Over-speculation that exacerbated the spike in commodity prices
  • Super-charged liquidity spurred by Quantitative Easing 2 (QE2)
  • The tactical Band-Aiding of sovereign debt issues in Europe
  • Japan’s supply-chain disruption
  • A double-dip in U.S. for-sale housing

But not surprisingly he categorizes the impact of these issues as nothing more than simply “paper cuts”.

Paper cuts? Seriously?

Of course, after brushing off that collection of 900-pound-gorilla issues, glossing over stagnant economic growth and abysmal employment numbers, he concludes that “Apartments, in a league of their own, should continue the march down the recovery path.”

But he couldn’t resist adding a monster caveat . . .

“Unless we enter a massively downward spiral that leads to fear-based, not fundamentals-based job cuts, property operations should remain relatively stable in most sectors.”

A massively downward spiral.

The kind that will be triggered, in my observation, if any of his “paper cut” issues goes really bad.

So I’m having a bit of trouble with his circular reasoning.

Listen, I’ve made it no secret that I think the economy in general and real estate specifically are going to get a whole lot worse before they get better. And I think the items he mentioned together will be the catalyst for the substantial downturn that we’re facing. The impact of these issues won’t be zero, and they’re most likely to be a mot more significant that a paper cut.

But that’s just me. What are you seeing?

You can read the full piece by Mr Nadji here: http://www.globest.com/blogs/streetsmart/-313014-1.html