Even Lloyd Blankfein says it is now very hard to really figure out these markets. However, we all need to make our best guess and move ahead with that until new information arrives. We have the unprecedented decline in oil prices, the Euro declining and potentially reaching par or just a bit higher. The Swiss Franc rising by unleashing it from the Euro peg. Now we have QE Europe and Japan and China unleashing a real anti corruption program, and a balancing act to try to stop the over development, but still trying not to have a cessation of development and infrastructure construction, as those employ hundreds of thousands across the country. Only the US is considering raising rates at a time when the rest of the world is fearing deflation and possibly recession in some countries. All of this leaves aside the potential for black swan events like Paris and almost in Belgium.

So what seems most likely to happen which will impact US real estate. Capital will continue to flow out of Europe and China. China has recently slowed this outflow in the past few weeks, although it is not stopped. Europe will likely see capital outflows accelerate as major players move out of Euro based assets and into dollar based. There is also the rapidly growing outflow of Jewish capital and businesses from Europe to Israel and the US. Middle East money left a long time ago so is not likely to be a big factor. Japanese money is starting to move out of Japan again and based on approaches I have had recently, there will be substantial Japanese capital coming to New York and major west coast cities. Just what I have been approached about is potentially in the hundreds of millions. So for major US gateway cities, the money will continue to flow in, and potentially will find its way to major secondary cities in smaller amounts over time. This money is more interested in safety than return, and depending on its origin, is either short or longer term. Chinese capital tends to be shorter term, while Japanese tends to be generational. European capital will tend to be mid to longer term depending on what unfolds in Europe. Given the likelihood of further material declines in the Euro, and the inability of the EU to really deal with its underlying structural and tax issues, it is likely that Europe will remain a poor investment for many years, despite all the billions of private equity fund money flowing in. Therefore, it is likely that Europeans will remain in the US as investors for at least three to five years or longer. All we need is another major terror attack or attacks and the funds will flow over here even faster. Israel is another beneficiary of this capital movement.

If the Fed does raise rates in late 2015, the dollar will move even higher and that will really pressure US manufacturers, and companies with large scale offshore operations. Just as the US was looking much better as a factory location due to labor cost efficiency and cheap energy, it is a high cost manufacturer due to the high dollar. Some industries will do well if they do not export much and can take advantage of cheap energy, but others will hurt a lot. It is also very likely that the declining rig count will start to push oil prices up in later 2015, and the energy savings may not last very long. That is very hard to know, when and by how much prices go back up. All of this makes it important to know who is the tenant and do they export a lot if leasing a factory or warehouse. My bet is the Fed holds off until very late 2015 or very possibly early 2016. Although the economy and hiring are better, household income is still well below 2007, and participation is much too low to be satisfactory to the Fed. The biggest additions to hiring are part time and hospitality and retail, which pay low wages. Lower gas prices are not showing up as much as expected in retail sales, and may not be the wonderful boost a lot of people expect. So far it is being used for debt reduction, saving, and eating out more. However, surveys show the middle class is still leery of big spending and may stay that way for several more years. They are also convinced oil prices will rise again late this year so they are not rushing to spend their relatively small windfall.