Pundits, Press And The Real World

For the past 18 months we have seen a stream of forecasts that the new normal was under 2% growth for GDP, that a recession was coming, Trump could not win, the economy was slowing, stocks would drop substantially, and other similar pronouncements, especially on CNN, ABC, NBC and from several economists. To date they have all been wrong. If you read the CNBC.com webpage, or Bloomberg’s daily webpage on the markets, you see, a string of people propounding this or that forecast of gloom, or legal trouble for Trump, or some other dire event about to happen. By now, hopefully, you have realized many people have an agenda, and they are taking the opportunity of their 5 minutes of fame to mouth off.  It is important when you are forecasting conditions for your own projects, that you try to take in as much objective information as you can from a variety of sources, the least of which should be the mainstream media. There is a lot of data, both local and national and worldwide, that is from government or other reliable sources from which you should draw your own conclusions.

So far Trump won, the economy is likely to perform above 3% going forward, and maybe above 3.5% later this year, the unwinding by the Fed is not disrupting the bond market, there was no collusion or obstruction, and Lanny Davis, the Clinton’s lawyer, went on TV to say Comey is a liar and should have been fired even before Trump took office. Alan Dershowitz, an eminent liberal constitutional scholar, opined that there was never any case for collusion nor for obstruction, and he is a well known liberal Democrat. And now we have the start of what is likely to be a continuing string of revelations by the IG showing not only that McCabe lied,  but that there was a concerted effort to cover up for Hilary because they all believed she would be president. Even Comey in the big interview said he was probably swayed by “knowing” Hilary was going to be president. He also said there is something about Loretta Lynch nobody knows yet, and McCabe told the IG he was pressured by the top level of DOJ to bury the Clinton Foundation investigation. Connect the dots.

The point of all of this is to suggest you need to get your politics out of your decision making and out of any analysis, and keep it objective and to the extent possible, keep it data based. Trump is not getting impeached and there is a good chance he could get reelected in 2020 if the whole McCabe, Strozk, Page cabal comes out from the IG. The attack in Syria has dramatically changed geopolitics. Now Putin, Iran, China N Korea and everyone else knows the era of weakness under Obama is over, and Trump is the new sheriff and will really shoot if provoked. They also know now that Putin has no way to protect them. For all the talk of Russian anti missile defenses in Syria, we did not lose a single missile. The Saudis, and other Arabs are now back on our side, Israel knows it will be protected, and I am sure India is watching as is Japan and S Korea. The entire calculus of all the bad guys has to now change dramatically, and those countries who thought they were safer with Russia or china when Obama was in off ice now have to recalibrate. The EU now also knows they cannot ignore Trump or call him names. He really will force a retrade of trade agreements and Germany will no longer be able to determine what is good for themselves, and make that the rules.

For CRE, all of this bodes well. It means the Republicans have some chance to retain the House and get control in the Senate. It is the economy stupid. It is also immigration, and trade. If the Republicans do maintain control and can get voting control in the Senate, then there can be much more deregulation and a real infrastructure program could pass. If you step back from all the media garbage noise, and all the biased reporting, and just look at the fact that despite all that has gone on over the past 8 weeks, the stock market is about where it was on December 31, and the real economy is plugging along very nicely. Real estate values have not plunged as rates rise and values hit very high levels, and they are likely to retain near their current levels for many months or longer as the real economy continues to generate 3% or higher growth, and as lenders turn down new development deals.

In my view, the decision to refinance or sell is clearly biased to sell. We are at peak values, and rates are definitely rising. Values over the next 3-5 years are very likely to decline from here as rates rise and time marches on. So this may be the ideal last time to sell before declines become the norm.  Maybe you think it best to hold and refi at a low rate, but if you hold for 5 more years, you are every possibly going to lose in value any cash flow you earned in the period. A lot depends on your tax position and if you are better off earning whatever by holding than selling and paying taxes and then reinvesting.  There is no right answer, but refinancing just because you think prices are too low now, and values will rise over the next few years, is not a smart decision.

The views expressed here are the author’s own and not that of ALM.