The Rant
For several months I have said we are at an inflection point in America and the world, and that there is a shift away from illegals open borders, DEI, equal outcomes, EV’s, weak foreign policy and boys playing in women’s sports. We saw this in Europe with the European Parliament and elections in Netherlands, Germany, France. There are vast ramifications to the election. The entire shift left is over. The other shift is blacks and Latinos are now part of the American middle class, and they think and vote the same way whites do in many cases. They want to get ahead and they want their kids to get a good education just like whites. The teachers’ union has no understanding of this shift. Universities have no understanding either. There will now be a series of new laws moving everything back to the middle or common sense. Climate craziness is over. Israel will now be free to take out the Iran oil and nukes and to force regime change in Iran. There will be no cease fires until Israel is secure in Gaza, Lebanon and Iran, and Syria and Iraq become at least not complicit in attacking Israel. The border will be shut, and the cartels will be subject to possible attack by US armed forces if Mexico does not shut them down and stop the drugs. Mexico will be economically shut down unless they stop the immigrants completely.
Ukraine will get at least a cease fire very soon after inauguration. China will pull back from confrontation in Taiwan as their economy will be deeply damaged by high tariffs if they do not back off on several major issues. The UN will be short of funds as that gets cut back. Taxes will go down. The ten-year will go to 5.0% or near that. Home sales will remain stagnant. CRE values will reset down as the ten-year interest rates remain high. Credit card rates will remain high, and so consumers will remain under pressure until the economy can really grow. Musk will force through major cuts in the budget nobody thinks possible. Social Security will be changed to some system that possibly is market based for a portion and means tested. Regulations will be drastically reduced. The teachers’ unions will be attacked, and education will return to real teaching as federal funding is used to change what is taught. The Pentagon will go back to no woke, and we are here to fight wars and deter attacks, not to do trans surgery. There will be a whole new set of top generals. The education department will go after the anti-Semitism at universities and funding will be used to force the issue. Fighting crime will be top of the agenda now in many cities but that will take time to implement. Sanctuary cities will be prohibited, and ICE detainers will be required to be accepted. Deportation of illegal criminals will be swift and extensive. The mainstream media will have to wake up and go back to reporting and not propagandizing. This election was seismic shift back to basics of American cultural norms. It is very reminiscent of the Regan Revolution in the sixties.
Geopolitics will change drastically. The US will be back in charge. No more weakness. No more concessions. Europe, and especially Germany, will be forced to spend a lot more on defense. Macron will have to shut up. The mullahs now must be in hiding. They will be dead soon. Kim will likely back off. Ukraine will have a ceasefire and that will lead to an armistice where Russia keeps some parts of Ukraine. The dollar will rise, and the Fed will stop cutting as the economy improves and the inflation rate increases again. Israel will get full support. There will be regime change in Iran as Trump makes sure oil is shut off and possibly, he sends US bombers to take out the nukes. Xi will realize he is barely still in charge and is better off to work with Trump than to create a crisis. Venezuela will collapse economically, as will Cuba as pressure is applied and as the power supply in Cuba remains mostly unreliable.
Trump will reapply the Reagan peace through strength policies. The next two years will see major geopolitical changes for the better. It will be very messy in the Mideast, but in the end massive change will occur. The Saudis will sign a peace deal with Israel and the whole region will prosper once Iran has regime change. Assad will be gone at some point, and Iraq will realize they need to start to cooperate. The Abraham Accords will be signed by all Arab nations eventually. Netanyahu now has much more latitude and support. It was seemingly crazy to replace the defense minister in the middle of a major war, but we will now see how that plays out.
You are now living through a major historic moment when everything will change. All of this will be a positive for the stock market over time. The ten-year will remain over 4.5%.
You are regularly seeing announcements of some supposed breakthrough technology for batteries or wind power generation or similar things. Don’t assume any of these are ever going to make any difference to anything, nor that they are scalable. For example, a Gates backed company just announce they have a new solution to wind power. Reality, it will work but it changes nothing according to my friend who is probably the country’s leading expert on these things. It is another way to generate power with wind but it no more efficient nor any kind of real breakthrough. Be very wary of these sorts of announcements. There is usually a long distance from a cool idea to scaling production and making a profit on some new idea. Many times, it is just one more idea that works in lab conditions but does not advance the realistic technology in ways that generate demand or profits. So, while there are many wonderful new technologies that are real advances and are scalable, and they are happening more quickly these days with AI, just be skeptical of these sorts of announcements until you see it rolled out at scale and at a cost that makes it viable. Even the major tech companies fail sometimes with new products or systems—i.e. glasses that are computers, or Metaverse.
The International Energy Agency, IEA, just released their 270-page forecast and model. It is nonsense and not valid so ignore any talking heads who quote it. Their model assumes the climate agenda because that is what they were told to do. It bears no relation to reality. You will see media reports and talking heads quoting the IEA. Ignore all of that. Reality is oil and gas demand will continue to grow for decades. Now that Trump is elected the US will go back to drilling and end the mass waste of money on climate fantasies. EVs will decline in purchasing and the auto companies will go back to producing what consumers want. CA will find it is forced to stop doing the far- left nonsense things it is foisting on its people. It will become the outlier and will see continued departure of major companies and population. It is going broke. Gas powered power plants will now get built as they are much faster to build and easier and less costly. Nukes will have a place, but the tech data centers will do what Musk did and build their own gas turbine power generation. There will be a doubling of peak electric demand. Due to the building of alternative power generation and the push for wind and solar, the system is far less reliable so there is now huge volatility in the wholesale power trading market. This is a trader’s dream. Prices are very volatile which makes huge opportunities for huge trading profits which is now being harvested by the likes of major Wall St firms who have the expertise. The one issue that needs to be resolved is the building of gas transmission lines to all these new power plants to serve the data centers. Orders for gas turbines are now booked through 2027, so manufacturers of these machines will profit very nicely.
There is now $6.4 Trillion cash in money market funds. It will now start to get deployed into stocks. This will now drive a longer bull market than we thought. See the Dow today. There will be much less risk once Trump is in office, and he quickly moves to end Ukraine and lets Israel force regime change in Iran. Xi and Trump will reach some sort of accommodation as Xi now needs Trump to try to stay in power. We just need to get through the next 3 months before Trump takes office. The biggest risk then is the deficit and cutting spending and growing the economy to get out of the coming crisis in the debt markets. Tariffs will be raised but far more likely only to 6.5% to equal what most others charge us. Mexico and China are separate cases. The attack on mergers and acquisitions will end and many more will happen. Crypto will become more acceptable but I am still very dubious. It likely will rise more now.
REIT’s have been reporting and most are doing OK. They have cut costs materially in many cases and have had some stabilization or even a little rent growth. Basically, not much changed and they continue to produce positive cash flows. None are forecasting big revenue growth, but none are forecasting major problems yet. Multifamily has another year to 18 months to go before rents on average start to increase much. For most of CRE it continues to be a waiting game until later in 2026, or possibly even 2027 before the CRE business is back fully. There is still no funding for most development projects and that will continue into 2025 as lenders continue to work through the maturity flood and workouts and refinancings. That will last most of the way through 2025 other than for the very large and best developers who must put up as much as 40% equity and guarantees. The good news for those who are patient, by 2027 there will be shortages of some types of CRE in some markets, and rents will be rising again, and lenders will be lending again. Interest rates will very likely still be based on a 4.5% ten year, or possibly higher, so the economics of projects will be very different than they were last cycle. It will take more equity to undertake development as leverage may be back to 60%-65% by then. The glory days of 3% loans and 3%-4% cap rates, and 70% LTC are over, so plan on that basis. It was fun while it lasted, but we are back to reality. Values of projects built or bought earlier will be much lower than you expected as rates remain high and so cap rates remain higher. It all depends on when you built or bought at what cap rate as to if you will have a profit on sale. For many projects, the profit will not be there.
Leisure travel is reducing as consumers are tapped put for trips and as the pent- up post Covid demand has been satisfied and the bills came in. It is very likely that the hotel business from here will be more and more challenged as occupancy declines and is not made up by business and group travel. In the meantime, insurance goes up a lot in some locations and wages continue to rise. The bottom line will get squeezed further as time goes on. There is also a bunch of new hotels coming on the supply that will further depress rates in some markets. The hotel business will be tough for a lot longer. It is not where you want to invest right now unless you can buy assets from lenders at deep discounts.
The German government coalition is falling apart over the budget for next year. German economy is a mess and getting worse partially due to their focus on alternative energy instead of fossil fuels and now the cost is uneconomically too high. Like CA. Their other problem is they were heavily dependent on China as the export market that fueled the economic growth. They allowed in immigrants to get cheap labor and then got good pricing from China on exports. So, now they have the immigrants but far less exports. Germany was the standard for the EU, but now it is the sick economy. The EU is going to have economic issues for quite a long time. What the make-up of the German government will be in 2025 is unknown, but this is why the far right has been doing so well in recent elections.
Buckle up. The next two years is going to be a very volatile ride.
