Real estate investing question of the week: Is there a dark storm on the horizon?

by | Jun 1, 2015 | Article, Topics

Mr. Barnes,

Good morning. I am a full-time real estate investor who subscribes to Personal Real Estate Investor Magazine, and I am fortunate enough to read your articles on a regular basis. I have become a fan of your reporting due to your straightforward, no-spin and non-partisan articles. They are based purely on fact, which is how I strive to operate my business.

There is a lot of information or misinformation out there about an impending economic collapse in the U.S. that could lead to a worldwide economic collapse. Based on the condition of our fiat currency, escalating debt and zero sign that our federal government is going to curtail its spending, I am inclined to believe there is a dark storm on the horizon.

I would greatly value your opinion as to where you see the state of our economy headed in the next couple of years. No one has a crystal ball; however, with your vast knowledge of foreign and domestic markets, your opinion would hold a lot of weight with my colleagues as well as it does with me. Your answers would help factor into how we should position ourselves to protect our long- and short-term investments.

I sincerely thank you for your time and look forward to hearing from you.

Best Regards,

Dave ā€œWillyā€ Williamson

Real estate question of the week: Is there a dark storm on the horizon?

Real estate investor question of the week:  Is there a dark storm on the horizon blog for real estate investors by Lou BarnesAnswer: Willy, bless your heart. You are very kind. Just so you know the basis for my opinions, my whole resume is under an icon to the right of my photo.

In some ways more important, I owe a huge debt to my family. Granddaddy was the founder of an S&L in Ponca City, Oklahoma (the town founded by his dad in the last great land rush, 1893), and figured how to get it through the Depression. Near the end of his life, he would gather me and the other cousins, just kids, to tell us how he saved the S&L (and the town), and what it was like to have his friends and neighbors bring him the keys to their homes.

My dad moved us to Boulder in ’52 to found his own S&L, then in ’60 was recruited to run the then-largest government bond dealer.

Thus, I grew up with the Fed, the dollar, rates, inflation, public policyā€”all at the breakfast table.

I’ve written every Friday since 1988 and try to avoid predicting the future except to measure how probabilities have shifted. But I will take a brief whack at your question.

No. 1 – I see no catastrophe ahead resembling the ones commonly predicted in the media.

Of course, it’s the one you don’t see that gets you.

No. 2 – Specifically, I’m a fan of the Fed, not worried about the back end of QE, or inflation.

Our fiscal affairs are messy but OK. Nor do I see new bubbles. The perfectly normal but perfectly crazy over-reaction to the credit bubble makes it impossible to provide the credit necessary for new bubbles.

The over-reaction is so strongā€”especially trying to run-proof the systemā€”that I don’t think we could get a bubble going if we tried.

No. 3 – I see two dominant influences that are going to last.

  • First, in August 1945 we were the most powerful empire ever seen, could not possibly sustain it, nor regain it, and our overconfidence is in the way of competing like everybody else.
  • Second, ca. 1990, the fall of the Iron and Bamboo curtains added well over one billion new workers to global production AND facilitated their production, price-cutting and competition via electronā€”all of that made worse by predatory trade behavior all over Asia and by Germany.

No. 4 – That first element in No. 3 makes me worried about decadence here.

The U.S. has no historical/political experience with dividing the tax/benefits pie when it’s not growing much and/or unevenly. We’re doing very well relative to the rest of the world, but we’re internally fragmented and prone to self-deception. But those are LONG future issues.

The second in No. 3, I think, will make low inflation/rates/returns persistent, and growth resistant to central banks.

No. 5- Real estate, as I bet you know better than I:

LOCAL! As good a place to invest as Boulder has been, we had a horrible local time during the Reagan Boom in the ’80s. And we were perfectly set up in 2000, no housing bubble, but got knocked silly by the Tech Bust; then nearly recovered only to be clobbered by the Great Recession. Contrariwise, during the awful recession ’79-’80, we had a fabulous run.

Best to you, Willy. Flattery will get you anywhere. If you’re bored someday, please tell the magazine I’m of some use to you. šŸ™‚

Lou Barnes

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  • Danny Johnson

    Danny Johnson has flipped hundreds of houses over the last 11+ years in San Antonio, Texas. He blogs about flipping houses at FlippingJunkie.com and is the author of "Flipping Houses Exposed: 34 Weeks in the Life of a Successful House Flipper," a best-selling book on Amazon. He also provides real estate investor websites atĀ www.LeadPropeller.com.

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