The Commercial Real Estate Alpha Site

Bryce Robertson via BiggerPockets.com

Based on historical and current data, we are on the precipice of one of the largest economical shifts any of us have experienced in our lifetime. There are a multitude of indicators and variables that I’m going to share with you that point heavily in that direction. It seems we’ve arrived at the eleventh hour before this economical shift comes to fruition.

But first, let me tell you what this article is not:

• It’s not what you’re hearing about on the top news channels or radio stations.
• It’s not what everyone else is talking about.
• It’s not a regurgitation of hearsay rumors that are floating around the mainstream that have not been fact-checked.
• It’s not financial, legal, or tax advice.
• It’s not the be-all or end-all of information on how to position yourself to best suit your specific needs.
• It’s not an opinion on whether things are fair or unfair.
• It’s not an opportunity to blame anybody or point the finger.
• It’s not to be taken lightly.

Here’s what this article is:

• It’s a compilation of information I’m passing along that comes from top economists, currency experts, investors, hedge fund management, historical/economic cycle buffs, and bubble experts.
• It’s educational information that you can use to fact-check and come up with your own analysis and viewpoint.
• It’s information we can tie together to get a deeper understanding of where we are economically and where we are likely heading in the coming months and years.
• It’s a possibility to become even better informed, so we can stay ahead of the game and protect our wealth.
• It’s a chance for us to not only survive but also thrive, as well as provide massive value as this economic landscape unfolds.
• It’s jam-packed with links to even more information, so you can further educate yourself. (Do it! Go down the invaluable rabbit hole.)

With that, let’s begin.

 

The State of Economy

In March 2020, it was declared publicly that the U.S. was officially in a recession.

The Bad News

Many of the most reputable economists, investors, cyclical experts, and billionaires are saying that a recession is “best-case scenario.” We are more likely to be heading into a depression.

Yes, that’s right—a depression. Some say it will compare to the 1929 Great Depression; some say it’ll be worse. More on this later.

The Good News

We still have time to reposition ourselves before the most dramatic economic impact is expected to hit. (More on this later, too.)

What? But isn’t everything going to go back to normal as soon as the “virus lockdown” is over?

I mean, this virus thing isn’t going to last forever, right? It’s gotta get back to normal.

I’m sure the government doesn’t want the economy to collapse! I’m just gonna focus on the now and hope that everything is going to be alright sooner than later.

Unfortunately, based on what I’m hearing from the general public, this seems to be the sentiment of many people. Their plan about how to best position themselves and prepare for the economic landscape is to wait and see how it unfolds. This really concerns me, as it indicates that most of the general public has no idea what’s really happening economically. They don’t know where this is likely heading.

Warren Buffett, Google, and Apple are sitting on a mountain of cash. One can only assume they are privy to understanding the massive economic decline ahead and the opportunity that lies within.

Buffett is not a gambler; he makes well-thought-out and historically wise investment decisions.

I’m going to provide a ton of data and links to more information below, as well as things we can do to best position ourselves.

But before we do that, let’s take a deep breath and have a quick practical “think” about what the domino effect will be (economically) given that most of the world has been shut down for a few months.

Much of manufacturing and production has either dramatically slowed down, changed its focus, or stopped. Companies have not only laid people off, many of them have also permanently shut down—never to open again.

China has had the largest decline in manufacturing ever. The port of Los Angeles (the largest container port in the United States) has seen less than half the quantity of shipping containers coming in. And this is not even current data, it does not reflect the recent impact in April.

The New York Empire State Manufacturing Index tumbled 56.7 points from the previous month to -78.2 in April 2020, the lowest level on record. It’s fair to say manufacturing is dramatically down at record rates worldwide.

Does that (I mean from a rational and practical standpoint) sound like everything is going to get back to normal as soon as the “virus lockdown” is over?

Don’t get me wrong. Normally, I’m an optimist. That doesn’t mean, however, that I disregard or ignore circumstances and possibilities.

In fact, as an investor, I explore all possibilities and evaluate them (aka do my due diligence). I evaluate worst, best, and probable case scenarios (further due diligence). Then, knowing that I’m in the position to handle the worst-case (evaluation of due diligence), I close on the deal and proceed to expect the best-case.

I’m putting this article together, not so we can explore all the possibilities of “doom and gloom.” Not so we can dwell on how deep of a hole we are digging and how bad it’s going to get economically.

Instead, my hope is for us all to be mentally, physically, and financially prepared for a large economic shift. We should all be open to new thought patterns, so we can be ready to help ourselves, our families, and those in our local, national, and global communities.

If properly understood, what is expected to unfold in front of us (and what has already begun to unfold) could be the most abundant opportunity in our lifetimes.

Unfortunately, most people won’t be in the position to be on the advantageous side of this—which therein lies the opportunity for us as investors to be creative and provide value by solving problems and filling the needs of those most negatively affected.

Again, I’m not an economic expert. I’m not giving financial, legal, tax, or investing advice. I’m simply passing on information that I believe is imperative to take into consideration.

Research what I’ve put together here. Do your own fact-checking (due diligence) and figure out what you think are the worst-case, best-case, and most likely scenarios. Determine on your own what makes the best sense for you (evaluation of due diligence).

We still have time to educate ourselves and prepare. However, top economists are of the opinion that the clock is expected to strike 12 in the very near future—likely within the next few months—at which point, those who were not prepared are unlikely to be in the position to effectively save themselves.

I wish you all well in the present, as well as in the near- and long-term future. And I hope you all get value out of this article!

 

How the Economy Works

Many of us understand how our asset class or niche in real estate works (micro). We can’t, however, say we are generalized real estate experts (macro), as there are so many different things to learn about and master.

Same goes as business owners. We can know the economics of our business (micro), but most of us don’t understand how economies as a whole work (macro).

To give you a little refresher (or to bring you up to date with the basic fundamentals of how economies work) please refer to this 30-minute video “How The Economic Machine Works” by Ray Dalio, billionaire and founder of Bridgewater Associates, the world’s largest hedge fund. Ray Dalio has a knack for giving basic explanations of complex topics.

In fact, Ray and his team predicted the 2008 financial crisis.

Ray predicts that what is to come in the near future is bigger than what happened in 2008. He believes we are heading into a depression more like, or worse than, 1929.

In recent interviews, Ray has spoken about where we are in our global economy currently and where we are headed. Here’s one such Bloomberg video:

Yes, he gives political two cents here, as well, but don’t miss the point. Focus instead of his economic commentary. Check out a couple other videos here and here.

For further insight, Ray has some books available on Amazon and some well-done informational videos on his YouTube channel.

 

 

 

How the 2020 Recession Will Differ From 2008

1. Statistics From 2008 Do NOT Compare to 2020 YTD

2008:

• National Debt: $10 trillion
• Unemployment: 5.8%
• Quantitative Easing (aka “printing money”): The first round began in 2008 and created $2.1 trillion of new currency/new debt.
• Interest Rates: The Fed slashed rates to 0% as a last-ditch effort to save the economy from collapsing.

When doing so in a recession, it can “save the day” so to speak, which it arguably did in 2008.

2020 YTD:

• National Debt: $24 trillion and counting (Check out this real-time U.S. debt clock. Astounding!)

Yes, that means the U.S. has more than doubled in debt since 2008. With unlimited money printing, we can only expect to double this again by the end of this decade. That would put us at $50+ trillion by 2030.

• Unemployment: 20.2% (and counting!!!)

There is much talk of extended lockdowns. Scientists keep saying this is only round 1 of a multiple-round coronavirus (aka we could potentially be facing longer and additional lockdowns). Think for a moment of how that will play into unemployment as we move forward.

• Quantitative Easing: UNLIMITED (Yes, that means the U.S. can currently print unlimited amounts of money, which consequently equals unlimited amounts of new debt. OMG!)

Here is a quick video on quantitative easing. It’s chapter 10 of a 27-part free educational video series called “The Crash Course.” More on this course later in the article.

• Interest Rates: The Fed slashed rates to 0% almost straight out of the gate as a frontline defense.

Typically, this is a last-ditch effort. Doing this so early in this economic decline means we are trying to run our engines on the last few drops of gas. There’s not much left in the tank once interest rates are at zero and once they are printing money like it’s going out of fashion.

The U.S. dollar as “the” currency could indeed go extinct in this decade and be replaced by a new currency. (More on this later.)

Jeffrey Bergstrand, professor of finance at the University of Notre Dame, Mendoza College of Business, said there are two notable differences with the way in which the Fed is responding now compared to the financial crisis of 2008:

 

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