Let me now take a step back to look at a few things. When the stock market gets hit like it did, I believe it is trying to tell us something. Yes, we always have factors that influence both the stock market and interest rates. Some factors influence in one direction, while the others go the opposite way. That is why timing markets is so challenging. Trying to read which factors win in the tug-of-war is not easy.
I bring all of this up as tariffs seem to be winning in their influence. The cost of steel (for example) has been hit pretty hard. This then leads to increases passed on to the consumer eventually. It also will affect new construction that is dependent on materials that are affected by the tariffs.
Circling back to the stock market, my guess is that we have seen our best productivity numbers. Long-term, the tariff war might be good for the US. However, in the short-term, it is difficult to see how companies (that utilize materials that are affected with increased prices) won’t produce weaker profitability.
Note that for several years we have had a lot of stimulants to the economy. If you recall, we had several iterations of Quantitative Easing and then we moved to tax reform. Both of these added money to the system. Combine that with extremely favorable interest rates and it is easy to understand why the GDP improved.
Now take the reverse of that; and then one would expect markets to be affected in the opposite direction. It just makes sense. However, some other factors may kick in to move us toward the next positive expansion. At this point, the factors seem to be pushing us more toward an interim correction. And, all of this still has us looking at a potential recession in about two years.
Investments Opportunities for Purchase with Strong Cash Flow:
If you assume investors in the Bay Area are getting a cash flow of 3.5%, then you can see the potential improvement with these properties above. This approach is great for the investors desiring increased cash flow, an opportunity to get out of daily property management, and/or taking the challenges of rent control off the table. Should you wish to discuss any of these or others, then give me a call.
Articles of Interest:
Bloomberg reported “The Sears Bankruptcy Is Likely to Inflict Pain on Mall Owners for Years.”
The DI Wire reported “Treasury Department Issues Guidelines on Opportunity Zone Program.”
See the table below for approximate interest rates.
|Apartments||4.645% – 5.260%||3 to 10 year (30 yr amortization)|
|Commercial||4.955% – 5.560%||3 to 10 year (25 yr amortization)|
|SBA Lending||Call for Options||Call for Options|