I once again had the pleasure of
hearing an economic update from Dr. Mark Dotzour. Contrary to the relentless
negative bias in the news media, Dr. Dotzour is bullish on the economy and the
commercial real estate market remaining strong for at least the next 2-3
years.
Here is a summary of my notes taken
in beautiful La Costa, California. Enjoy the notes, and make it rain!
1999, 2006/2007, Now – times when he has been
talking about the potential for a recession
MD thinks we may still go another full year or
so without being impacted by recession
Because
of the tax cuts of 2017, MD thinks it will drive the economy for 4-6 years
(maybe 2021-2023 for recession time)
Economy is really strong; no hint of recession
at this point
MD espouses the same thing as KW…don’t watch the
damn news! If you want to stay informed, simply skim the headlines of the Wall Street
Journal and talk to REAL PEOPLE who are running businesses
US is still creating 160,000 jobs per month
MD is not a Republican or Democrat…..he is a
registered cynic!
Trump’s tweet that the Federal Reserve is the
enemy of the people is idiotic and bad for the economy
MD thinks Trump will prolong the China debacle
until about a month before the election (this would be the perfect time for a
photo opportunity)
China has stolen our jobs and intellectual
property…in exchange we get cheap toys and TV’s
MD thinks China needs to do what Japan did in
the past…move their manufacturing plants from China to the US (like happened in
the auto industry)
Why 2019-2020 Will Be Slower
Housing industry appears to have peaked
Auto industry appears to have peaked
Smart phone sales declined in 2017 for the first time
Low oil prices will pressure oil and gas
Trade negotiations with China causing pain
Businesses not using tax benefits to expand
Congress won’t be interested in growth
Federal budget deficits can’t get too much higher (we are almost at $1 Trillion)
Companies “buying ahead” inventor in front of tariffs
Current expansion as of August 2019 is 123 months
How long can it last?
Longest previous expansion is 120 months
Longest US Economic Contractions (average lasts 11 months)
Dec 2007 – Jun 2009; 18 months
Jul 1981 – Nov 1982; 16 months
Nov 1973 – Mar 1975; 16 months
Dec 1969 – Nov 1970; 11 months
Nov 1948 – Oct 1949; 11 months
Yields are down, and they are still going to go LOWER
MD expects 30-year mortgages to go down into the mid 2% range…wow
MD does NOT think interest rates will be going up any time soon
Every month somewhere between 80k and 300k people get a job
Wage growth is growing at 3.5%
There are 7 million OPEN JOBS in the US: Bureau of Labor Statistics
Household Net Worth now in excess of $108 Trillion
Consumer confidence is at an all-time high
The good news is that consumers are not buying in to the BS hype being espoused by the media
Per NFIB, Small Business Optimism has “roared back”
10-year treasury has fallen from 2.5% to 1.4%
Rate Impact on CRE Market
Cap rates are moderately correlated with the 10-year US Treasury bond rate
The 10-year bond rate is NOT controlled by the Fed
The 10-year bond rate moves up and down with the expected rate of inflation
Conclusion: Cap rate might increase when inflation expectations increase
Cap rates are not likely to go up any time soon
10-Year Government Bond Rates (Aug 19, 2019)
US
1.588%
Canada
1.172%
UK
0.471%
Germany
-0.648%
France
-0.370%
Italy
1.446%
japan
-0.232%
In several countries they are experiences
NEGATIVE interest rate environment
Advice from MD: simply be careful with leverage
on your properties; don’t over-lever yourself and you will be able to weather
any recession
