Our country is entering what promises to be a fascinating year. We are in an exciting election year, our country has a 60-year low rate of employment (although I question the quality of the employment), interest rates remain at historic lows, the tariff wars seem to be subsiding, the markets are closing at historic highs, crime is hitting historic lows in most areas, our fanatical enemies in the Middle East seem to have been largely marginalized, a Middle East Peace Plan has finally been put on the table and the impeachment process has come to a close so our lawmakers can finally get back to the job of governing.
Does it sound too good to be true? It probably is. So now we look to the future and began to formulate plans for the upcoming changes.
We all know that every economic expansion will be followed by a recession. It’s just a question of when. As of today, February 12th, the DJIA closed at an all-time high. Our unemployment rate of 3.5% beats any major western democracy and fits the definition of a fully employed economy. To me, it’s just too much good news. I would feel a whole lot better if the Federal Reserve was not filling its balance sheet at such low rates. Their hands are tied, and they are running out of tools in their toolbox to maintain this expansion. Which to me means an upcoming recession will be far harsher than it has to be.
I just trimmed my equity holdings by converting to cash, especially in my IRA. Forty years of planning can evaporate in an instant if proper plans are not made to protect the principal. I would encourage all of you to have a discussion with your financial advisors about how best to protect your assets from a large sell off.
I also look to real estate for early indicators. Inventory is in its fifth year of low inventory, which is artificially holding up prices and maintaining high Fair Market Values. But I see a slow creep on inventory levels and a major revolt by Buyers pushing back against the Sellers, appearing first on the high-end condo buildings along the Wilshire Corridor and soon to crawl over to the Single-Family Residence Market. All it will take is a few moves up on the long-term rates by the Feds or another drop in the credit rating of U.S. government treasuries, or a major foreign challenge to U.S. interests by Russian or China or a renascent confrontation between Iran and the world community. Or maybe a slight combination of all of them. These are very real events that may take place.
Inventory is at such a low number that it appears unsustainable. Take a look for yourself, as of February 12th as reported by the MLS/CLAW, showing single-family residences (houses)
For Sale on the open market;
Area 01 Beverly Hills SFR Active – 103
ZC 90210 – 86
ZC 90211 – 13
ZC 90212 – 4
Area 03 Sunset Strip / Hollywood Hills SFR Active – 226
Area 05 Westwood / Century City SFR Active – 31
ZC 90024 – 17
ZC 90025 – 3
ZC 90064 – 7
Area 06 Brentwood SFR Active – 97
Area 08 Cheviot Hills Rancho Park SFR Active – 13
Area 13 Palms Mar Vista SFR Active – 25
Area 14 Santa Monica SFR Active – 48
Area 15 Pacific Palisades SFR Active – 88
Area 28 Culver City SFR Active – 23
If you extrapolate from this the simple fact that normally 25% – 30% of the properties on the open market are priced too high or in terrible disrepair making them unattractive to Buyers. This only exacerbates the whole problem of a low inventory.
On another note, a slurry of interesting factoids have crossed my desk and I want to share some of the best with you.
♦ These 10 states have the highest GDP per capita in the USA: New York, Massachusetts, Alaska, North Dakota, California, Connecticut, Washington, Wyoming, Delaware, New Jersey.(Statista)
♦ Dwayne Johnson (The Rock) was the highest-paid actor in the world in 2019, having earned $89.4 million before taxes. The average Actor/Performer salary in the USA is $56,582 as of November 25, 2019, but the range typically falls between $46,627 and $69,084. Taylor Swift earned about $185 million. The median pay for S&P 500 CEOs rose to $ 12.2 million per year.
♦ These states have the highest real estate broker incomes (mean annual wage) in the USA as of 2017:
1. New York $102,310
2. Texas $72,480
3. Hawaii $72,470
4. Alaska $71,030
5. Rhode Island $70,450
6. California $68,860
7. Pennsylvania $66,550
8. Wyoming $64,500
9. Virginia $64,290
10. Colorado $63,320 . (FORBES)
♦ If you thought your renovation was expensive, think again! Buckingham Palace is spending $479 million on its massive renovations. (Observer)
♦ Negative interest rates that have spread through Europe and Japan are coming soon to the U.S. according to a Societe Generale strategist. Interest-free mortgages perhaps? The average interest rate for a 30-year fixed-rate mortgage is now just 3.45%…. (CNBC)
♦ Lower birthrates are a result of people postponing childbirth into later years, but also because of chemical toxicity in the environment, according to a forthcoming paper from Jeremy Grantham, founder of asset manager GMO. A large part of economic growth is tied to population growth. Excluding immigration, the US population is shrinking. In the U.S., the number of babies was the smallest in at least 32 years and the fertility rate is “an all-time low” of 1.73 children per woman. (BARRONS/Marketwatch)
Don’t get caught unprepared, as so many people did in 2008. Pay attention to the indicators, pay attention to your finances and make plans to protect your hard -earned savings.
Be safe and be healthy.
— Mark Rogo
