Turning Point Week

A lot of where the markets and politics, and CRE go from here will be indicated this week. It will be a very big week for earnings reports, and they will be better than expected, and will show extremely strong revenue and earnings continue to be generated. Forecasts will be increased by several companies, and the stock market will become more bullish. All good for CRE.  Commodity prices continue to be lowered and the ten year continues to be fairly stable, which bodes well for CRE.

Several female clerks of judge Kavanaugh are going public now, and flat out declaring that the Democratic claims about the judge are pure lies, in their words. In fact, numerous former female associates and clerks who have known and worked with him, say he is very pro women. It is becoming clear there is nothing in his record on which the Democrats can make any valid case that he should not be confirmed. We can expect more of these women to come forward to support him this week and ongoing. It will be very hard for the Democrats to claim all these bad woman issues, especially when it is shown that Judge Kagan hired him to teach at Harvard. If Kavanaugh is confirmed, as he will be, then that is very good for business, and so, good for CRE.

This is the big one. The EU delegation arrives at the White House this week to negotiate a trade deal. Based on reports in the press it is apparently a key that they will propose a solution to auto tariffs that may be acceptable to Trump. That is a key piece. The other key is farm products. It is pretty clear they would not be coming to make a overall proposal to Trump unless there had been a lot of preliminary work at very top levels to get to this stage of discussion. None of us knows what will happen or what is being put on the table, but chances are a deal will be done as both sides need to get this resolved soon. If one is concluded, then Mexico is supposedly moving well on a new deal in replacement of NAFTA. If the EU and Mexico come to deals with Trump, Canada will have no choice but to fold. That means the EU meeting this week is the key to all but China and if it is successfully concluded then the whole tariff discussion shifts to only China as it is presumed that any deal with the EU and Canada will have quotas and controls on metals. That leaves China, and the whole world has the same issues with them that Trump does- theft of IP and forced technology transfer. China has increasing serious issues of its own and a trade war is not something they can easily afford, especially if the US settles with everyone else. If Trump does successfully resolve trade with the EU and then Canada, that is a huge winning issue for Republicans in November.  It will also be a big win for CRE as lumber prices may then fall. It will be a while for Canada to get resolved, but it will happen. So the key is this week and the EU meeting. If all does go well, that is very good for markets and so very good for the economy and CRE.

GDP statistics will be announced end of this week. Based on most forecasts, it is likely the number will be 4% or maybe better. It also appears that the economy is ramping up further, and resolving tariffs with the EU and Canada will lift a cloud that will then result in much more cap ex moving forward on new facilities for manufacturing and distribution. It also means wages will continue to rise, and unemployment claims, already at a 50 year low, will possibly continue to decline. This then translates into more demand for housing and more ability to move up in rental quality and ability to pay rents. Assuming trade gets resolved with the EU and NAFTA, then there is a very high probability that GDP will grow at 4% or better into the end of the year.

The radical shift left this week by the Democrats following the primary win of the kid from the Bronx who is leading them over the cliff, added to Maxine Waters and Pelosi, and the Republicans are now very likely to retain complete control of Congress. The House will pass the new tax bill aimed right at the middle class and it will make the Democrats look like they want to raise middle class taxes when vote no. All of this will mean a Republican win in November and that is very good for CRE.

So stay tuned this week and you will be able to much better forecast where the economy and CRE is headed over the next two years.

The views expressed in this column are the author’s own and not that of ALM’s Real Estate Media Group.