These days, the only thing I may be clear about is that there is no clarity in the world today. So, how in the heck do you decide—are things headed up or down? Let’s take a quick look at the market pros and cons out there to make sure we’re all equally confused:
The Pros
• GDP has expanded for 10 consecutive quarters.
• Unemployment is down from mid 9 percent to mid 8 percent and is its lowest level in three years.
• We saw positive job growth every month in 2011, the first time this has occurred since 2005.
• Corporate balance sheets are flush with cash, and have had increasing profitability for three years running.
• Both individuals and corporations have de-leveraged and increased savings/retained earnings.
• We have historically low interest rates that have and will be around for a long period of time.
• In the United States last year, developers broke ground on 56 million square feet of office development—the lowest level tracked by McGraw-Hill Construction since 1960—yet.
The Cons
• The unemployment rate at 8.3 percent understates the underemployed rate, which exceeds 15 percent of our workforce.
• The participation rate—those that are still looking for a job—is down from a high of about 66 percent to 63.7 percent. (If it was at 66 percent, the unemployment rate would be 11.4 percent!)
• Although January had a strong jobs report—243,000 new jobs—half of those “new” jobs were part time positions.
• Euro-zone troubles, at best, will restrain the country’s economic health.
• The political dysfunction in the U.S. around debt, spending, regulation, etc., continues to fuel uncertainty.
• The exogenous risk of geopolitical unrest in the Middle East with Iran, Syria, etc.
• U.S. housing markets continue to try to find a bottom.
So, if there is no clarity, how the heck do you make decisions? I fudged a little bit on my first statement above about “the only thing I may be clear about;” I’m also certain that we will have little control over the direction of the above pros and cons.
However, we do have pretty good control, along with our company leaders, over what we can do at our firms. It’s all about your attitude or perspective—not about the things we don’t control. I firmly believe this is one of those unique times when risk will be rewarded—but, only very discriminating risk-taking and only over a longer period of time.
The point is, with some $1.2 trillion of real estate debt coming due the next several years, and much of it not fully supported by the asset, there will be many unique opportunities. However, not all will be worth the risk. This early part of the recovery is very much about city, submarket, and asset-specific picks—a “stock picker’s” market versus a “buy the index” market.
So, amidst all the uncertainty, we are certain that we should all continue to work harder, smarter, and more diligently to take the appropriate risks for which we can be rewarded during this time of lack of clarity!
