• Terry Yonker

Interest Rates and the Printing Press — Advil For the Economy


We're rich!

Sometimes Events Just Don’t Follow the Normal Rules


The unemployment rate is at 8.4% in a pandemic, yet the Case - Schiller Home Price Index continues to show home prices at all time highs.


Up to 54% of small businesses are shutting down, yet the S&P is near all time highs.

How do we make sense of it all? And how does it affect us personally and collectively? Not just us, but our neighbor behind the mandated mask?


Here are a few ideas that can help make some sense of all of this.


1. Markets that are controlled by government action and non-free markets can hide serious flaws. For a time...

Dalio Says Capital Markets Are 'Not Free' as Central Banks Drive Economy


In his article, Ray Dalio covers the difference in this bailout. Increasingly, these bailouts include equity stakes in companies. This type of bailout precedent was set with the auto companies back in the great recession.


The creative destruction from Adam Smith's invisible hand is all fine, until the federal government wants theirs. To help, of course.


The Chinese model of owning companies is simply too much to resist! Good luck competing against them in that industry!



Read more: Mnuchin Indicated Bailout Includes Government Taking Equity Stake in Airlines: Report



2. Will there eventually be a reckoning, and if so is later better than now?


Charts: The Economic Impact of COVID-19 in the U.S. So Far


The damage to the economy is undeniable. But has this artificial asset inflation been worth it? With this much capital flowing into the markets, poverty and hardship have undeniably been delayed, maybe even put off indefinitely. See the Hutchins Roundup: Asset prices, poverty rates, and more.

This could be the economic version of ‘flatten the curve’. Stave off these big swings, and then let some pain in as we begin to recover. A longer term easing of stimulus measures to avoid the effects of these huge swings.


If we could ever get to the hypothetical surplus to pay back in prosperous times, this plan actually could be viable!


Read more: How Do Asset Bubbles Cause Recessions?


3. In an election year, EVERYTHING has to be taken in context unfortunately.


How Coronavirus Could Tank The Economy – and Trump 2020

This is akin to shutting down the National Parks during a government shutdown. If they only bought one less tank, they could keep them open for an entire year!


But we wouldn’t feel that. They need to make us feel the pain.


Similarly, as we get closer to the election, can we brace for a manufactured crisis just before we go to the polls to take this guy down?


I’m sure both sides are fighting for the controls. If the government can inflict pain on us leading up to the election, it helps one side. If that pain can be delayed with the Advil of stimulus payments and printing presses, it helps the other.


Either way, once the stimulus eventually slows, something has to give, it's just a matter of when. Doesn’t it?


Read more: Trump stares down a ticking economic time bomb




Market Update

The Nar September Market Report is out... And it's a doozie.


  • A huge contraction in volume: 64% for July!!

  • Risk premiums are finally increasing. It has been so hard to find higher cap rates in the previous environment. Given the perceived higher risk we may finally begin to start seeing affordable commercial asset pricing resulting in higher cap rates. When we look at something like apartment cap rates of 8.5% in ‘02, it's almost hard to believe that existed when even now we are sitting at 5.3%.

  • Corona Effect:

  1. Suburban Office property — this is one of our target opportunity sectors. There has already been a shift to suburban office given the typically 50% price differential, but with this COVID lockdown typically harsher in cities and with people’s fear increasing, the move to these offices will only be accelerated.

  2. Surprisingly, only 24% of employees teleworked in August! This is helpful to see the facts given that in my bubble, almost everyone has been or is teleworking, shaping bias, when in fact it's not as pervasive as one may think.

  3. The model of 4 days home and 1 day in the office to meet and keep the synergies that just can’t be replaced over zoom is becoming more and more pervasive. Very attractive for the coworking sector where companies can use the conference room weekly and have a smaller number of offices available at any time.


Read more: September Commercial Market Insights

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