What to make of the market meltdown? The R word (recession) comes to our mind.
There is more going on here than meets the eye. We have been saying for years that the seeming economic boom is not real. It’s a chimera.
However, it’s not a fabrication or illusion of your mind but the political class. It is in large part the result of monetary pumping, government spending and data fakery.
As Larry Kudlow said, “the economy is like a used car, shiny on the outside but you need to look under the hood.”
Closer scrutiny of job creation numbers the last 3 ½ years reveals nearly 3/4s of new hires are by government or government supported industries. For anyone paying attention, government and government spending are growing, not the economy.
This is the basis of the disconnect between how consumers feel and how well our governing elites tell us things are going.
There is nothing organic about this “growth.” It doesn’t come from the ground up in terms of increasing opportunity and initiative. It’s all the by-product of money and credit manipulation.
It all worked until it didn’t. Now we are looking at the very real likelihood of a global inflation-recession-depression.
This reckoning was postponed due to the state of stupor induced by easy money policies, government expansion and record deficit spending. However, this string of disastrous policy decisions is finally coming to a head.
No doubt, when it can no longer ride things out, there will be emergency policy meetings by the Fed to re-induce the dreamlike state investors have been living in via rate cuts and other sleight of hand. Whether or not this will succeed is open to question.
At some point, asset valuation fundamentals must reassert themselves. When this does occur, it could result in a level of pain and austerity the current generation has never had to face.
If this proves to be the case, CRE investors are wise to invest in as defensive a manner possible. If the economy continues to shrink, the current administration may no longer be able to paper this over with more government jobs and spending. Widespread dislocation and downsizing may occur. Fortunately, these historically are two of self-storage’s principal demand drivers.
People may move about more in search of jobs and consolidate down in terms of housing. Economic hardship may force even more migration than seen here-to-fore. Think John Steinbeck’s magnum opus, “The Grapes of Wrath.”
From an investment standpoint, it’s never good to chase panic. However, if panic comes to you by way of increased demand for your product, that is something else entirely.
Extraordinary government spending combined with the highest interest rate levels since 2001 is a toxic mix. Wise commercial real estate investors should brace for higher unemployment and inflation alongside diminishing demand. This will be dislocating. Storage may benefit disproportionately.
