Tuesday, June 30, 2009

Green Shoots in My Lawn

I have been reading a lot about green shoots in the economy lately. Just like Bigfoot, there are those that have "seen" it/them and there are others that insist it/they do not exist. I think this is one of those glass half empty, glass half full debates. The truth is it depends upon your point of view and context. My business is up 300% over last year (really). Is that a green shoot? What about the new restaurant that opened down the street from my office. Is that a green shoot?

In each case above it depends on how you look at the numbers. I had two project reviews "walk in the door" in April yet I had been working on getting that work since last year. So in that case, I would not call it a sign of the economy picking up. The new restaurant down the street (which has excellent mexican food by the way) is a good sign, however, there are three existing restaurants that have gone out of business since January 2009. I am honestly not trying to spin the numbers or convince you of something where I am "right" and you are "wrong".

Personally, I will see and believe in green shoots when I start to see new non-construction jobs opening up. Don't get me wrong, construction is a great field and traditionally pays very well. But, when the job is finished, so are you. Honestly, I am just as confused as anyone when it comes to our economy. I see the stock market up while on the same day unemployment reaches a 26 year high. I hear the credit crunch is behinds us yet I cannot refinance a land loan that I have. I see great sales in the Sunday paper but few consumers actually buying. The canary in the coal mine is JOBS. Anything else I see on the positive side is a result of the economic stimulus package or temporary construction work. The stimulus package is really fertilizer designed to give us a quick boost. When the "food" is gone we may find a very brown lawn.
We are in an economic winter here. It will be a while before the spring is here and green shoots appear in my economic lawn. Rest assured they (green shoots) will come and we will probably miss the first few signs of new real growth.

On the positive side, I am seeing a lot of assets re-priced and being liquidated in the market place. While it is painful to be the one selling your investments at steep discounts it does put money in to the hand of people that will generally spend it in the economy (versus saving it). The last thing I want to leave you with is many segments of our society are in flux and some say we need to adjust to the "new normal".

While I agree some thing's have changed forever (very easy credit to name one) life will go on. This is also an excellent opportunity for most of us that have spent much of the last 30 years taking advice from "experts" that really knew what was going on. The playing field has been leveled and you and I now have a chance to learn in real-time along with these former experts about what the new normal will look like. I know, not much to brag about but it is nice for the little guy to know just as much as the big boys for a change even if what we collectively know is "not much".

Monday, June 15, 2009

Repost: Gold Up, Dollar Down, Inflation out the Wazoo!

I was speaking with a friend recently and a blog that I wrote back in January of 2008 came up in conversation. I decided to re-post it since it is quite relevant to what is happening currently.

What the heck is the Fed Chair thinking? I know, I know, keep the country out of a recession. Yeah, right, like that is going to happen. The good news is my gold stock is way up. The bad news is so is my Canadian bacon.

This country is in so much trouble from the Cheap Credit Party that the only real solution is to turn on the printing presses and print our way out of "real" debt. I knew the hang-over (from that credit party) was going to hurt but man! Now to add insult to injury my savings is worth a lot less this year than it was in just 2005.Thanks Federal Reserve Geniuses. I appreciate being penalized for actually (shock and awe) having a savings account instead of being 10 bazillion in debt.

Don't get me wrong I have a mortgage just like everyone else but I did not go out and buy 10 Miami condos on margin to rack up my debt. The only silver lining is our real estate is now comparatively cheap to foreign investors and tourists.Inflation is now getting ready to leave the earth's orbit ala 1970's style. I can't wait to order my first $100 cup of coffee. Okay, enough complaining and feeling sorry for my country, now on to what are we going to do from here.

The only way I know how to preserve buying power (wealth) is to own hard assets such as gold, real estate or some other object that does not deteriorate over time. Gold is sky high because the dollar is in the toilet not because it has "gone up in value". The price of gold has gone up, not the value. If you don't believe me check out the price of gold in Euros. Sure it is higher now than a few years ago in terms of euros but in dollars, it has tripled!I think the best investment is real estate! With that said, I don't think everyone should go out and buy a house or office building but referring back to a blog entry this summer "When it Pays to Buy, Buy" there is a time and place to buy real estate.

I have a personal example to share with you. I just love the beach. I have always wanted a place at the beach where my family can spend holidays and lazy weekends. Here in SW Florida, there are some tremendous deals on beachfront condos. Many of these condos demand high rental rates from December through April. If you find the right deal the rent from this period of time may cover you entire ownership costs. So while inflation is rampant and your banker is only paying you 2.5% for your money why not invest in something that pays for itself and you enjoy.

Another example is rental property. While we are in this huge housing slump it is a good time to hunt for bargains where the rent will cover your carry costs. Office space is another option however, one must be particularly careful when considering office and industrial property as the economy is slowing down and many small business will go under and potentially a lot of vacant space may emerge driving down rental rates.My favorite asset type is either bulk lots from builders or complete developments where the developer is in hot water for one reason or another. The key to these deals though is CASH! The reason why investors and companies are in trouble is DEBT! Don't get me wrong, debt is a wonderful tool but it is analogues to a sledge hammer; hit the right spot and mountains will move, hit the wrong spot and you lose your left foot. If investors and companies did not have debt on their books they could afford to hold their assets forever without fear of bankruptcy. Of course the way to make money is to turn your assets over and over making profits along the way. Obviously no sales equal no profits. So if you are long on cash and short on investment real estate, take another look around you for opportunity.

I was just offered bulk lots by one developer for 33% of the development costs. I was sharing this with a friend of mine yesterday and he asked how I know that particular deal is worth going after. My answer was simply, when you can buy something for less, or in this case a lot less, than what it costs to build you will be way ahead of your future competition. I can turn around and sell these bulk lots to another investor a year to two from now for 50% of the cost to build and still make a 50% profit on my investment. Not too shabby when you consider the alternative is a 2% or 3% money market rate.I am always taking questions so feel free to email me dave@keystonellc.net.

A Video on Government Spending


I am working on an article about Water Quality permitting in Florida as well as update on SB360, which I hope to publish here soon. Until then enjoy the link above.