Playing Ball in the Later Innings

I had the privilege of attending the Society of Commercial Realtor’s annual December breakfast last week at Ridglea Country Club. The crowd was as big as I can ever remember (and I’ve been attending this breakfast for over 10 years now).

Dr. Mark Dotzour (traveling economist, entertainer, and purveyor of wit and wisdom) was the featured speaker. Dr. Dotzour retired from his position as chief economist at the Texas A&M Real Estate Research Center last year and now spends his time giving between 60 to 100 speeches per year around the country to help business owners, investors, and professionals to make smart decisions about the future.

Overall, he is still bullish on the coming horizon. Below is a summary of my notes from his presentation. Enjoy!

  • What inning are we in?
    • He was saying 6th or 7th inning at the beginning of 2016
    • He is still saying 6th or 7th inning today (it’s been a long, good inning)
  • 2008 was not a recession, it was a complete collapse of the financial system
  • Recessions are not to be feared; it is simply a period where the US consumer does not spend as much as they were previously spending
  • Threat of inflation is highest today since 2008
    • MD does not think we will see rapidly rising interest rates
  • Inflation Protection (other than GOLD, which Dotzour feels is lunacy at the inflated prices)
    • Apartment buildings
    • Self storage buildings
    • Crop land
    • Single family homes
  • Since 1945, there have been 11 economic cycles
    • The average recessions has been 11.1 months
    • The average expansion has been 58.4 months
    • In December, the current expansion is 90 months (the longest expansion has been 101 months)
  • In normal economic expansions:
    • Private sector hires people
    • Public sector hires people
      • Because of sequestration, there has been minimal public hiriing
      • Most of the sequestration spending cuts have come directly from defense spending cuts
  • Oil & Gas industry is turning the corner; thinks we are in for a big turn around in next 2 years
  • MD – Quit watching Fox News and MSNBC – it is all designed to make you think we are living in a time of crisis
  • Socialism = Horrific Disaster
  • Capitalism = Vortex of Creative Destruction
  • Europe and Japan are in shambles because they don’t understand how to be capitalists
    • You can’t FIRE anyone or take bankruptcy without government approval
  • You can’t make good business decisions today without paying attention to what is happening in Washington, DC
  • MD is still bullish, but the signals are mixed
    • US leading index of economic indicators is still high
    • New jobs are still being added each month
      • 100,000 to 300,00 jobs per month
    • Wages are rising
      • US median household income grew 5.2% from a year earlier, to $56,516 after adjusting for inflation
      • Despite what the media is saying, we have a labor SHORTAGE in the US; be on the lookout for labor strikes coming in 2017
      • If Trump is successful and creates another 500,000 jobs in America, wages will continue to RISE; this will cause inflation
    • Every action has a result
      • If we keep manufacturing in America, products WILL become more expensive
      • This will further increase the threat of inflation
      • We have a choice to be happy to pay a little more for the jobs to stay in America
    • There’s are 5,486,600 open jobs in America TODAY
      • There will be 2,000,000 manufacturing jobs vacant in the next decade, due to a shortage of skilled workers in the US
    • Consumer confidence index is still very strong
    • Car sales are at record high levels
      • Average age of a car is still 11 years old
    • Single family housing starts are way off from the peak
      • Still LOTS of room to grow
      • MD thinks there could be a decade long boom in single family construction
      • Can’t get enough new houses on the ground because there are not enough LOTS available; there are not enough LOTS available because the OCC won’t allow the commercial banks to make loans to developers to acquire lots
  • The Business Sector
    • Corporate profits peaked in 4Q 2014
    • Still pent up demand for hiring
      • Mostly from small business rather than major corporations
    • Two forces at work on inflation in 2017
      • If inflation rises, so will the 10-Year Treasury
      • If wages go up, inflation rises
      • If the Dollar gets stronger, what we purchase will get cheaper, and net out the inflationary pressures
    • Japan’s Chimera: Quantitative Easing in a “New Dimension”
      • They continue to print money to buy bonds and STOCKS
      • BOJ is now a top-ten stock holder in about 90% of the stocks on the Nikkei 225
      • When this unwinds, this money will begin to flow into the US to purchase bonds, CRE, and single family homes
      • Sept 27, 2016 – Japan ceded DEFEAT of deflation
      • Japanese stock market has been declining over the past 6 months
    • European Chimera
      • Now purchasing corporate bonds at near-zero interest rates
      • “Negative interests rates aren’t a matter of yes or no, it’s a matter of for how long.”
      • Sept 27, 2016 – ECB Chief says stimulus alone can’t boost Eurozone
      • Deutsche Bank is about to implode and go bankrupt (unless it is saved)
    • Energy war is escalating
      • Saudi Arabia and Iran are now our business partners
      • OPEC president said in May 2016 that $65 per barrel is a “Fair Price”
      • Middle East Budget Strains
        • Saudi Binladin Group (largest contractor in Persian Gulf) has not paid their workers for months; because the Saudi government has not paid THEM
        • Per MD – Saudi Arabia is at risk to go bankrupt because of Leo oil prices
      • EOG can now make a 30% profit with oil at $40 per barrel; that profit could get as high as 60% if oil gets to $50 per barrel
        • They have 1,740 premium drill sites in the Permian Basin that will allow them to produce at these levels
        • What does this mean? Saudi Arabia is SCREWED and Texas is in great shape!
      • Oil & gas stocks are in good shape
      • Working rigs in Texas are ticking up
      • Texas index of leading indicators (heavily influenced by oil/gas) is ticking up
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