Burn After Reading‐What Could Possibly Go Wrong!: Absorbing today’s news and events, and trying to make some sense from all the hyperbole, reminds me of the 2008 black comedy film written and directed by the Coen brothers. Osbourne Cox, played by John Malkovich, is an alcoholic CIA analyst with a twisted view of the world with a paranoid, almost psychotic spin on reality. In the context of today’s current events, how does one maintain perspective with the overload of potential outcomes surrounding events like Brexit, daily terrorism and gun violence, the Orlando massacre, Trump nativism, Dodd‐Frank, driverless cars, Clinton, oil, the 1%, immigration reform, globalism, artificial intelligence, China’s economy, civil liberties, jihad and America’s status in the world? By contrast, the characters and mindless events in the movie are intentionally dysfunctional, which makes for great satire, where nothing makes sense and the lack of meaning is a joke on us. Current events are no joking matter, nonetheless, hard to comprehend news that just makes us sick.
Future Shock: I was struck by a recent article on Alvin Toffler, the “futurist” pop culture American writer, who predicted in 1970 what we are experiencing nearly 50 years later‐ the daily flow of unsettling events;” a revolution from an industrial society to a “super‐industrial society. This change overwhelms people”. He assigns real psychological damage caused by “the dizzying disorientation brought on by techno‐abetted globalization, corporate dominance, economic panic, social media, and terrorism”. One of our biggest challenges created by the computer age coupled with a 24 hour “fire hose” of content, is not allowing the media to “de‐value” intelligence over appearances and produce news that is simply delivered to generate fear and bias. As you may recall, a basic principle of DJM’s investment strategy is to understand the difference between choppy seas and safe harbors, the seduction of cheap debt with overpriced real estate and the market psychological difference between buying into fear and selling into greed. Our investment strategy is less nuanced than today’s media spin, for sure, but we nonetheless deal with both real and imagined effects from the events mentioned. Maybe Ben Franklin had it right; “An investment in knowledge pays the best interest.” “Jesus. What did we learn from all of this? Not really sure, Sir!”
… CIA Director J.K. Simmons’ closing line‐Priceless and Poignant…
Where’s King Solomon or the Oracle When You Need’Em? Our past is full of really wise folks who provided a calming and insightful narrative on current events. Many historians describe Solomon as the biblical king most famous for his wisdom; unfortunately, that was 2000 years ago, way before trade deficits, Democrats, Republicans, the Federal Reserve, Too Big To Fail, Snapchat, Google, Facebook and Yahoo Finance. What about an oracle: a person considered to provide wise and insightful counsel or prophetic predictions of the future; remember the Matrix. Lucky for us at DJM, we are fortunate to have the Oracle of Madison, Tim Hennessey of Prudential. We are partners with Prudential on Bella Terra and get the benefit of Tim’s perspective as a stakeholder in Pru’s $65 Billion global real estate fund. Essentially, in the multiple property funds managed by Prudential, they are experiencing the highest rate of Redemptions Request today from their institutional investors than in the last five years. At the moment it appears that Prudential will invest around 50% of the amounts invested in 2015. Defensive investing, with conservative leverage is their “down the fairway” strategy for the balance of the year. Tim is not entirely alone in his assessment; we are in the late innings of a six‐year economic run. Many economist and investors believe that we are headed into the Great Recession 2.0. Deustche Bank predicts there is a 60% chance of recession in the next year, based on historical patterns.
Alternatively, according to Rob Miller at DJM, he characterizes the US bond market like the last lemonade stand on the street during a hot summer day and people are thirsty! And, that’s not a bad thing. I guess that explains why US long‐term interest rates hit their lowest point ever (lowest in 227 years) last week. On the flip side, there are a lot of “Osbourne’s” out there gripped with panic; I’m not feelin it.
Don’t Worry, Be Happy‐Find Your Index! Play more golf, keep your head down, all about the tempo. No this isn’t a golf analogy; Just offering a different perspective. According to Wells Fargo Bank, the U.S. economy is growing at a 2.0 % annual rate; the Federal Reserve is likely to hold interest rates steady well into 2017; The Bureau of Labor Statistics reports unemployment at roughly 4.9%, which represents the Fed’s estimate of full employment. The Consumer Confidence Index, which polls 5,000 households, expressed through their savings and spending over the past two quarter is positive. The Expectations Index, a component of CCI, along with Economic Anxiety Index and the Money Anxiety Index measures consumers’ financial anxiety for over 50 years, beginning in 1959. Historically, the Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid‐1960s. Today, the 50‐year average is 70.7‐draw your own conclusion. The Consumer Price Index increased at 1% over the past 12 months; no worries on inflation. Happy Planet Index, Fear & Greed Index, Prosperity Index, no kidding, is based on 89 different variables analyzed across 142 nations around the world; the US ranks 11th out of the top 30 countries. Economic Freedom Index measures the impact of liberty and free markets around the globe; in 2016, the US is ranked in the top ten of all industrialized countries. I imagine one can find an Index, through the omnipresent internet and social media, measuring anything from golf scores to existentialism. The simple truth is that the US continues to be a very safe place for financial and personal security, and a country capable of managing its growing pains.
Look at the Math or Look in the Mirror: Is objectivity today as difficult as finding the illusory Silicon Valley unicorn or sanity in a black comedy? Everyone’s got the curiosity for the adventure, but what about the quants and algorithms to figure out where to invest, what’s hot, what’s not and find that billion‐dollar nugget? Our daily adventure starts with a map, route and a mission statement. DJM Capital Partners is not a venture capital firm or a hedge fund, and not focused on that disruptive tech start up or app that will change the world, or possess the kernel of mathematical genius that reveals undervalued equities that can yield “alpha” returns. What we do is manage, develop and invest in real estate to create wealth over time with a really smart, dedicated and composed team. DJM’s compass is focused on a clear trajectory, on its mission with its wide range of investors, from private individuals who have invested with us for over 30 years, to relatively new investor like Prudential and Teachers. Since early 2015, DJM has consummated in excess of $700 million of new investments with private and institutional equity. Is our continuing route to success effected by current events? The capital markets, interest rates, banking regulations, capital flight, and inflation definitely influence how we invest. What I think is more relevant is DJM’s skill at understanding the stark divergence between fact and fiction; reading the tea leaves, respecting the pull of uncertainty, while remaining as objective on the fundamentals of our business. I like our route. Enjoy the Summer! Go to a movie, play some golf, read a book and go to a baseball game…
DJM Capital Partners, Inc.
D. John Miller, Founder & CEO