by Erich Beyer | Apr 13, 2023 | Economy
There are many theories on where the Fed will take interest rates. With the Consumer Price Index (CPI) up “only” 5% in March, down 1% from February, it seems there could be validity to both. The first is that even 5% will be too high for the Fed to tolerate, and will continue raising rates almost certainly sending the US into a recession. The second theory is that at the first sign of a recession the Fed will reverse course and decrease rates back to or close to where they have been for the past 5-10 years, near zero. It seems to us that the Fed is fairly determined to get inflation under control, which will take likely many more and/or larger interest rate increases to make an impact. By the time they have gotten inflation down, the US will almost certainly be in a recession.
So what does this mean for Archangel Capital?
Its a mixed bag. With interest rates at a much higher level, cap rates will in some way be affected, bringing the value of our existing holdings down. It should however, force some sales of commercial properties, potentially at discounts when existing owners need to sell or refinance. We will gladly make this trade, as the past couple of years has presented an extremely difficult buying environment, and is the reason we did not purchase anything in 2022. Prices simply could not support the long term projections we made for properties we evaluated. In short, a recession could present a welcome buying opportunity for those that didn’t waste their money on bad deals in 2021 and 2022.
by Erich Beyer | Jul 7, 2022 | Economy, Investing
I recently came across a pitch deck for a multi-family deal looking to exit in 5-7 years. The purchase cap rate of this specific deal was 4%. This is not unheard of and I fully predict this deal will be successful, however the exit cap rate was projected to be 4.5%. When I saw this, I could not help but think of a CBRE chart I saw recently that showed historic cap rates were, and how fast and far they have fallen from only a few years ago.
I do not claim to be able to see the future and know that cap rates will be higher than 4.5% in 5-7 years. I do however want to prepare myself and my company for cap rates back near the 6% mark where they were just a few short years ago. Especially given the markets volatility, inflation still out of control, and construction costs still at all-time highs, I believe the best course of action when looking at the future is to project nearly the worst-case scenario. Anything to the positive will be just that.
by Erich Beyer | Apr 10, 2022 | Economy
For years now, the inversion of the yield curve, whereby the yields on the 10-year treasury fall below that of the 2-year treasury, have been a signal for many as a coming recession. This happened in the mid 2000s as well as preceding the dot-com bust in the late 1990s. This happened this week, and many now worry about the possibility of a coming recession.
While there is no guarantee that this will result in a recession, and past performance is not indicative of future performance, it seems that this inversion is one more data point that indicates, economically speaking, we could be in for a difficult next couple of years.
by Erich Beyer | Mar 8, 2022 | Economy
The geopolitical events that are unfolding across the globe are not unprecedented, but we have not seen anything like this in over half a century. There are many factors at play in favor of recession, and I will touch on a few – inflation, oil, geopolitical uncertainty.
Inflation was a problem before this Russia/Ukraine war started. The covid-19 pandemic triggered massive production problems, and these were exacerbated many times over by supply chain issues and labor shortages. At the same time, people were traveling less and spending less, so when the government began sending out stimulus checks before passing the $1.75 trillion spending package, inflation ensued. Personally, I thought we had reached a peak of 7% inflation in December, but when inflation hit 7.5% in January I thought we were in for a recession. This was before Russia entered Ukraine and, as of today, the US banned imports of Russian oil. Oil prices have just hit an all time high, and we haven’t even seen the impact of losing oil imported from Russia. None of this accounts for the fact that the Federal Reserve will likely raise interest rates this month, and may continue to do so this and next year.
Extreme uncertainty, fear, and rapidly rising costs across almost every aspect of American life, have all the makings of the next great recession.
