A national commercial real estate crisis is picking up momentum with many landlords and banks facing historical financial losses. WeWork’s bankruptcy and Blackstone’s project by project defaults are adding hundreds of large commercial properties and many millions of square feet of office space to an already in-process crisis. Long term interest rates are expected to continue even higher as U.S. government long term bond auctions now reflect many traditionally large buyers walking away (and actually becoming sellers). The most recent 30-year Treasury bond auction required the Primary Dealers to buy and hold almost 25% of the securities auctioned (a deeply negative result on a long-term historical basis).

Link to Financial Times article on commercial real estate: https://www.ft.com/content/7518fea2-b2f2-4cad-8b58-c524764614cd

Link to University of Michigan consumer sentiment:

https://www.reuters.com/markets/us/consumer-sentiment-drops-again-november-inflation-expectations-climb-2023-11-10/

Interest rates and inflation continue as major issues for economic growth and family well-being. BRICS countries cutting back needed raw materials and threatening our EV industry. Nuclear power and cancelled pipeline plans coming back on the table. Preparing for a long-term war related economy?

This week we discuss anticipated Fall-out from a new extended period of high interest rates, out of control government borrowing, and challenges to the U.S. dollar.

The CARES Act has moved over $20 billion/month into the hands of business owners. These amounts are nationally significant and have kept many reported government indices out of recessionary mode. This year the monthly cash payments from the IRS to businesses began to ramp up from $20 billion to $40 billion/month which is over half of all corporate income taxes normally received. Due to rampant fraud in this program over 600,000 new applications are now held in suspense with no IRS processing allowed through at least the end of this year. Meanwhile, the Dept. of Justice in collaboration with the IRS have trained auditors to root out fraudsters and attempt recoveries. The fraud is thought to be so large that it has kept the “official” economic statistics looking somewhat healthy vs. recessionary. With or without this fraud, inflation is remaining a serious issue as we’ll describe in this podcast.

Why it takes a while for a crisis to manifest itself…fair warning! Commercial real estate is rapidly transitioning from a core lending component to a core financial solvency issue. Bad debts for both commercial real estate, small business, and consumers moving through the pipeline will negatively impact the financial markets in a big way.

Welcome to our 100th episode! We’d like to thank our loyal listeners for making it to #100 with us!

This episode will provide a summary of today’s leading economic issues with expectation of real estate, banking, and refinancing crises this year and next. Energy and therefore, inflation, is rapidly surfacing and continues to lead the U.S. into a “Round 2” of the 2007-2009 Great Recession in terms of impact due to “high interest rates for too long”. Special attention is given to China’s growing aggressiveness to challenging the West in terms of supply chain and U.S. dollar dominance.

Please take the time to view this recent U.S.-China appraisal led by the Hudson Institute and Kyle Bass (global business leader and China expert): https://www.youtube.com/watch?v=98kMSEkPiLo

Two important meetings for the U.S. economy, inflations, interest rates, and global dollar valuation. Expect interest rates to continue higher this year and next as the U.S. Treasury sells record volumes of debt with few international buyers. Also, expect another banking crisis to rear its ugly head soon based on the commercial real estate needs to finance with downward trending collateral values.

Keep an eye on the results of the BRIC’s Annual Meeting taking place in South Africa this week for clues on China bailing out their own banks and real estate firms.

Out of control spending has deferred a major recession but time is running out. Interest rates due to banking sector stresses will remain high this year and next given the federal government’s need to refinance almost $15 Trillion of debt this year and next. Begin thinking about the natural resources and energy sectors as attractive investment opportunities for a recovery starting in 2024.

Please refer to these links to simulate your plans for next year:

https://www.etftrends.com/2016/05/23-best-etfs-to-track-basic-materials/

https://www.kiplinger.com/investing/etfs/603452/commodity-etfs-to-ease-inflation-worries

Higher interest rates coming as the U.S. sells $Trillions into the global bond market each month. Inflation moves in waves with the next wave starting soon this year. Raw materials will be important investment opportunities as the West rebuilds manufacturing, moves aggressively to EV autos/trucks, and oil prices resume a uptrend. Please access this link to begin consideration of raw materials company investments: https://www.etftrends.com/2016/05/23-best-etfs-to-track-basic-materials/

The next phase of higher interest rates is starting and it’s a combination of the Federal Reserve selling many $billions of its bond portfolio plus the U.S. government ramping up its sales of new debt securities. Both short- and long-term interest rates can be expected to increase another one or more percent by year-end choking off business borrowing and creating more bank crises. Bad news aside it may be time to start planning for a recovery starting in 2025 or, possibly, later.