Rent Sense: Long-Term Investors in Real Estate Should Pay Attention to Historic Attitude

Neil Fjellestad and Chris DeMarco

Special acknowledgement to recent article authored by Bryan Rich. His daily publication, The Forbes Billionaire’s Pro Perspectives contains global market perspectives from the founder of Forbes Billionaire’s Portfolio. Bryan Rich is a former hedge fund professional with nearly 20 years of experience researching, trading and investing for some of the most sophisticated investors in the world.

December 12th a report was issued that small business optimism hit the second highest level in the 44-year history of the index. Last year, following the election, this index that measures the outlook from the small business community had the biggest jump since 1980. For most of them, they had dealt with a decade-long crisis in their business, where they had credit lines pulled, demand for their products and services crushed, health care costs out of control, and their workforce slashed. If they survived that storm and were still around, any sign that there could be a radical political change coming in was a good sign.

A year ago, with a new administration coming in, half of the small business owners surveyed, expected the economy to improve. That was the largest agreement of that view in 15 years. They’ve been right. You might argue that Trump talks about economic growth and is taking credit for improvements that were already in the pipeline. Just to be clear; this rhetoric matters from the President of the United States especially when the press hangs on every word and small business is finally, not being ignored. Now with an economy that will do close to 3% growth this year, still, about half of small business owners expect the economy to improve further from here.

Why are they still convinced of more economic improvement? Tax cuts are coming down the pike. They’ve seen regulatory relief over the past year. The chief economist for the National Federation of Independent Businesses, says on behalf small business owners that they see the incoming Fed Chair (Powell) as more favorable toward business (and market determined decisions) than Yellen.  He puts it this way – “As long as Congress and the president follow through on tax reform, 2018 is shaping up to be great for small business, workers and the economy.”

This reflects an economic theme that cannot be ignored by both business owners and consumer activists. Here it is in a nutshell – the importance of fiscal stimulus to bridge the gap between the weak economic recovery that the Fed has manufactured, and a robust sustainable economic recovery necessary to escape the crisis era. Included in the crisis era is the inability of public decision-makers planning and providing an infrastructure that includes an adequate supply of affordable housing through the free market that rewards investors for living with inherent business risk while not defiling the property rights of landlords and tenants.

This small business survey tends to correlate highly with consumer confidence. Consumer confidence drives consumption. And consumption contributes about two-thirds of GDP. So, by restoring confidence, the simulative policy actions (and the anticipation of them) has been self-reinforcing.

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