Sunday, April 5, 2020
Saturday, March 28, 2020
BusinessesRight now, many businesses are experiencing between fewer and no customers. If they are not flush with their own cash, they need working capital to stay afloat. Shortly before writing this, I saw an article that said Cheesecake Factory does not anticipate being able to pay the rent on their facilities. The CEO of Texas Roadhouse said he will forego his salary for this year so the employees can be paid. This guy is showing leadership and appreciation for the people who make his business work. Money is needed to keep business running. The lower interest rate will help ease the pay back burden but the money supply (the amount the Fed creates out of thin air) is what will keep these people in business.
The same is true for some in the real estate business. If there are mortgages to pay, having tenants out of work does not make for a happy landlord... or happy lender. If this thing is over in a few months it may not hurt the rehabbers and builders too much, yet they still have unbudgeted carrying costs. It is not known at this time how the banks will use this availability from the Fed, lending it out will be giving the borrowers a larger nut to crack, and cuts into their profits but they will stay solvent. King Solomon summed it up well in Proverbs 22:7 “The rich rules over the poor, and the borrower is the slave of the lender.” But... it's better than going out of business. Or perhaps, it just delays it.
SaversThe thrifty, work hard and save your money types, will continue to take a beating at the hands of the banks offering their sub one percent CDs. Better to buy a Willie Nelson CD at least the online store won't insult your intelligence.
It's not that many people these days can count on interest accumulation to fatten their home buying fund, but this certainly will not make it easier to accumulate substantial down payment money. In a way it is good for new buyers that the FHA will finance them with almost no money down, But it does leave them vulnerable to downturns in the housing prices as we saw when the bubble burst years back.
BuyersWhen it comes to selling houses, if the money supply holds up, it may make it easier. With cheaper money more people can afford the houses on the market. So until they decide the market is expanding too fast and raise the rates it may be a good time to make hay while the sun shines and sell what is ready, IF the chicken littles in the media have not destroyed the confidence of the buying public.
InvestorsI understand that most investors don't trot on down the the local financial institution to be laughed and misunderstood by some banker with the employee mentality when they want to fund their deals. However, some do and they may benefit from this lower rate IF the bank passes on the reduced interest and does not make them grovel too much. For the others, cheaper money may have an impact on hard money lenders as well... but maybe not as they are paying for availability apart from the banking system. However, if more money is available overall, it may just result in more competition (and higher prices) for deals.
These are a few of the factors we may be facing in the coming days. Others, including wild cards of how long people will be cowering in their homes, and the attempted destruction of public confidence as well as any regulations our helpful betters may see fit to impose can move any of these suppositions in either direction. Experts, or those we look to for answers don't agree so we just need to stay calm and flexible since this will help us respond to many of these situations we can neither predict nor control.
Having said all that, we need to go back to the beginning and look at something that is common knowledge among those who have been following the actions of the central bank (the Fed) for some time. We need to get rid of the idea that the Federal Reserve is a government agency acting altruistically for the benefit of the American people. Despite the name, they are no more a government agency than Federal-Mogul Corporation or Federal Express. They allow the President to appoint the chairman, but it is still an organization assembled by the major banks in the US. The whole sordid tale is told in the classic book The Creature From Jekyll Island. It's a good read that will scare the daylights out of you... even Willie Nelson said so after reading the book. There have been several other books written on the topic, but this one appears to be the definitive work that pulls back the curtain and shows what is really going on.
Right now there are just too many variables to be certain of the future... but as always we just need to be paying attention to everything going on around us and make the best decisions based on the best information we can get. There are no guaranteed of anything, except change.
Saturday, March 21, 2020
Robert Schuller was fond of saying “Tough times don't last, tough people do.” Thomas Paine told us, “These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman.” We aren't fighting an enemy trying to kill us with muskets and swords, but we are fighting an enemy that can destroy lives and our economy – our way of life.
Many have chosen to complain and obstruct honest efforts to get us through this time. They are the nay sayers who would rather point out their perceived problems than do what is necessary to fix the situation. For the forseeable we will be inconvenienced by efforts to stop the spread of this Chinese virus. This is much like we are inconvenienced here in Pinellas County as every where we go as streets are torn up and traffic rerouted in an attempt, they tell us, to provide a higher capacity storm sewer system to handle the massive rainfall we see during the frequent tropic storms and occasional hurricane. I hope the local efforts are worth the annoyance.
Fortunately, for the first time in many years, it looks like the direction coming from DC is taking us to the solutions we need. However we still see far too many people hurt by our disinclination to travel, congregate in larger groups and got restaurants. These choices are either our own or by decree. They are the right things to do and sometimes those who can least afford it pay the price. The government is trying to ease the burden with some cash, but by their very nature cannot take care of everybody.
There are hospitality workers who are simply not needed for sparsely populated hotels. There are waitresses and waiters dependent on tips employed by empty restaurants. Clerks in shuttered stores. The list goes on. There are people hurting financially, emotionally and spiritually now. Like the government, we can't help everyone, but perhaps we can help a few... like those of us who we have the privilege of providing housing.
Among the suggestions is that people should be forgiven rent on their homes. This is a fine suggestion by someone with no skin in the game and nothing to lose or mortgages to pay. Like pretty much all give away schemes, they are proposed by those who think someone else should pay the bill. There may be some large corporate property owners with free and clear properties that could do this but many have mortgages to pay and simply cannot forego the monthly revenue.
That said, within the bounds of economic realities, it will not hurt work with tenants who have been with us all along but have run into some tough times. In doing so we have to remember that taking care of tenants includes keeping lenders fed who have financed the rental properties. This is not the kind of thing that Paine's sunshine patriot would do. The summer soldiers would throw up their hands and tell everyone there is nothing they can do. Taking care of people is the right thing to do and, long term, is good business. However, it can not be done to the point where your business can no longer function and you cannot take care of your other tenants.
Many small businesses cannot afford to be shut down or work without sufficient revenue for long periods. The real estate business is no different, some allowances won't be too damaging long term. I am suggesting that rather than cursing the darkness around us in the form of the Chinese virus, we can light a candle and pitch in and help where we can.
Other ways we can help ease the burden of our separated lives is to do such things a buying gift cards from our favorite restaurants to help them with some cash flow while people stay home. This isn't charity as these cards are fine to be cashed in when the virus is defeated and we start going out again.
One thing I have learned over time is that we aren't bothered nearly as much by all our inconveniences and annoyances when we are helping someone else. Americans came together after the War Between the States to become one country again. Americans defeated the Axis powers in World War II. Americans put a man on the moon. Americans developed much of the technology we use everyday. And we will defeat this virus in spite of the bellyaching and carrying on by the whiners among us. Each of us has a choice we can join the whiners or we can be overcomers.