Home Sweet Home in a Brave New World: What is happening in the good ole US of A? Depends on who you believe. Check the following data metrics from the International Council of Shopping Centers (ICSC), National Association of Real Estate Investment Trusts (NARIET), Bureau of Labor Statistics, Bloomberg, US Bureau of Economic Analysis and the US Treasury. We all should be smiling, right? Lots of folks believe that the data is rigged and we are living in a delusional “asset bubble” and it’s time to bunkerdown?

 

It’s All Good, But Not Everyone’s Buying: The U.S. economy added 321,000 jobs in November, 2 million jobs in the past 8 months; the strongest job growth in 15 years, with a net effect of putting government revenue above $3 trillion with added income taxes derived from job growth. The S&P 500 ended 2014 up 14.00%; Nasdaq Composite up 11.32%; Dow Jones Industrial up 9.35%; The 10 year treasury averaged 2.20% in 2014, currently at 1.90%; 50% drop in crude oil; cheapest gas prices since 2010- US domestic production doubled in the last 6 years, resulting in energy independence, with significant national security implications, while generating $1000’s of annual energy savings for the average American family; Housing starts increased by 14.6%. Consumer confidence index the highest in 8 years; Real GDP increased at an annual rate of 5.0 percent in the 3Q14. Multifamily REITS up 26.99%, with single digit vacancy and 3% annualized rent growth. The national retail vacancy rate 4Q14 landed at 10.4%; Five of the “Top Ten” Retail Markets in the US in 2014 are in California; #1 San Francisco at 3.8%, #6 Oakland/East Bay at 6.2%, San Jose/Silicon Valley at 6.5% and #10 Orange County at 7.2%. Geographic density and barriers to entry drive these numbers, as clearly reflected in the Bay Area, Orange County and New York City metro area. Smallest federal deficit since 2007, $72 billion less than FY 2013, roughly 3% of 2014 GDP and the lowest since the 1980’s. Pretty compelling fundamentals.

 

Beware the Boogeyman-Fear Sells: Uh oh! Oil fell below $45 a barrel, driving prices to the lowest level in more than 5 years. According to Wells Fargo, falling oil prices with a stronger dollar, lowers the cost of imports, and could trigger U.S. inflation. What a paradox; oil is trading at 2009 levels today, so if this significant asset class gets hit with inflation we may end up where we were 6 months ago… huh? The reaction by many economic gurus now predict the great stock market crash of 2015! Soaring Bond prices, a clear indication of economic problems for the growth in the global economy. According to Dr. Doom, Nouriel Roubini, this decline in treasuries in the past 6 months is a predictor of another economic collapse, killing the buzz around robust growth for the US in 2015. Many believe that the Fed is about to raise interest rates and really shut down the party. Dr. Doom’s current chicken little view is that the sky is falling and we’re barreling back to 2008. Not sure whether these naysayers yelling “fire in a crowded theatre” are peddling investment advice, selling hedges or white papers? I’m not buying it.

 

Prozac Anyone?: One way to cope with the “noise”, and the preoccupation with “what ifs” and worst-case scenarios, can be found through your smartphone on what I call “Psycho Apps”. Instead of spending valuable time reading your favorite news source, or the DJM Investor Report, download the “Garden of Evil” and really understand fear; even though it’s only a video game. Just kidding. Download De. stress. ify and experience the benefits of this “Stress Relief App; a program that can permanently rewire the brain for less stress and greater mental and emotional balance in as little as 10 minutes per day”. DR. Doom could benefit by this app, along with his fellow adherents… versus listening to rational explanations of the overall benefits of lower energy cost, consumer confidence, home purchases, expanding economy, cheap debt, with virtually zero inflation on the horizon. Or, forget all that and just remember one thing- most peoples’ greatest fear is public speaking; so what do we have to worry about!! Who’s giving speeches anyway? Everyone’s selective on what they want to believe, and I am convinced that scaring people creates unnecessary anxiety and sells media-­‐real or imagined “facts”. The naysayers need to chill! I couldn’t say it better: “Facts do not cease to exist because they are ignored.” Aldous Huxley.

 

Just the Fundamentals, Maam!: Or, is public hysteria over market fluctuations another example of the “herd mentality” on wall street? Maybe. I endeavor to stick with the “Fundamentals of the Obvious” -I’m an optimist! Everyone has an opinion, and rightfully so, however, my advice is to consider the source and draw your own conclusions. In the real estate world, our world, we advise all our investors to weigh the “fear and greed” extremes and maintain a balanced perspective and assess how much risk you can tolerate in your portfolio- don’t overthink things. Avoid the “grip of partial perspective” that many of us find difficult to shed and see things more clearly or pragmatically.

 

Not Every Day is a Holiday: Notwithstanding my attempt at humor, we are living in changing times with the continued integration of the global economy and geopolitics. No denying the stress created over the conflicts in the Middle East and other hot spots mired in violence and social disintegration. Even with the drop in the Euro and the value of the Dollar, we still seem to be penalized, at least perceptually, for an improving US economy and the potential economic ripple effect in Europe, Japan and Asia. The US, meanwhile also bears the weight of an $18 trillion national debt. Not sure how all of this is going to play out, but I am continuing to invest prudently and finance long with attractive debt on premium brick and mortar commercial real estate, including our own properties. Fear is not part of that equation nor does it influence our investment decisions. DJM had an extraordinary 2014 with even more opportunity in 2015. At the moment, we are managing nearly $850 million of financings, developments and our new NNN/Single Tenant Fund. All very exciting. I embrace the current metrics, as fundamentally positive for all of us blessed to live in this great country.

 

Happy New Year!

DJM Capital Partners, Inc.
Asset Manager

D John Miller, Founder and CEO of DJM Capital

 

By:
D. John Miller, Founder & CEO