Wednesday, December 03, 2008

Commercial Real Estate Next?

Pat and I talked about this a couple of weeks ago. Just like the housing market crash... commercial real estate is likely to go through a similar fall. Check out this AP story posted in the Dispatch a few days ago.

Sorry to be Debbie downer... any thoughts on when this recession will turn around? I'm ready to consume my way out of it... I really want a new computer badddd!!!


  1. I'm an advertising consultant to local businesses. Some people hate "the economy" and some ignore it. Hating the economy is no way to run a business. There are so many assholes out there that think because they have some tools or a computer that makes them qualified to run a business. Eddie Vedder said it best, "Its evolution, baby." Only the smart and strong businesses deserve to survive.
    Those business owners that have intelligence and keep a positive attitue to persevere, will do just that.
    It fairly obvious that we were living in a false reality of how well we were doing for quite some time (spending borrowed money). I see this as a nice reality check to put us in our place. So many people were buying beyond their means, that this had to happen. A while ago someone posted about saving money to buy what you want(I think it was Witten). That's what should have been happening more and more. Now they have no choice. when I talked to Brad (our resident expert on finance) he was excited about all this. I'd like to hear more from him. Sounds like we won't see a better time to invest in our lifetimes.

  2. Sorry, this is long and random....

    Here's another article about people borrowing huge sums of money to pay for something at a time affordability is an issue, higher education.

    Ohio was one of 41 states begging for federal money this week and expects a $7.3 billion shortfall over the next 2 years.

    If you see anyone on TV or writing on the internet comparing the current environment to the 1930's turn the channel. They're full of shit. Before a comparison to the 30's can be made, more recent comparisons to the 90's, 80's and 70's are much more applicable. In terms of bank failures, business and consumer loan defaults and unemployment, we're no where near the 30's. Unemployment is getting close to the 90's, a little less than 8%, in the 80's and 70's a little over 8%.

    Retail sales from Black Friday and Cyber Monday, even during this "horrible" economy, were up about as much as 2007 vs 2006.

    The drop in gas prices is huge. Reported retail sales numbers include gasoline sales. The most recent report showed retail sales down I think around 4%. Ex-gasoline they were down closer to 1%. Restaurant sales were up, and have been since February.

    We're currently in year 8 of a 16-18 year cycle of volatile stock prices and a volatile economy. The last period like this was the late 60's to the early 80's, before that the late 20's to the mid 40's. The periods between them, such as 1982-1999 with fits and starts along the way, are when it seems nothing can go wrong. Even the 1987 crash looks like minor discomfort on a long term basis.

    The last time certain valuation levels were near where they are currently was 1974. (this is just history, not a recommendation) In 1975 the stock market gained 40+% as the economic news was horrible. Economic news is likely to stay very bad for awhile.

    Several other market indicators of stock prices are at levels only seen at major bottoms. If you can stomach short to intermediate term pain and volatility, it probably is one of the better times to invest. But only take the risk if you can afford it and can tolerate it. If you can't pay your bills and can't sleep at night thinking about your investments, sell enough to make you comfortable. Keep putting money in retirement accounts. The risk there is less b/c of the longer time horizon. If you have non-retirement accounts (taxable) you may want to rearrange the deck chairs. Take some losses, short or long-term, for the tax benefits.

    Housing is still a problem. Only recently did builders stop building. While there is still a huge supply of new houses and foreclosed houses, family and household formation continues, and will eventually work out the oversupply.

    As far as spending our way out of this. Remember Jan Palmer, Macroeconomics, ECON 104?


    Money supply times velocity of money (the times money changes hands) = Prices times value of real output. The V usually is a constant making economic growth depend mainly on money supply. (Monetarist Theory) Currently, and this isn't a bad thing, people are saving instead of spending. So the economy slows as money supply continues and prices deflate. Deflation is a concern currently.

    If you can afford a new computer, new car or new house, you can probably get an awesome deal right now. Dell has several laptops with serious equipment under the hood at pretty good prices.