Could De-Dollarization accelerate US RE?

[AJ Wong]

The rules of investment of changed. The US dollar is at risk and the element of cash reserves essentially losing value should be beginning to factor into long term investment strategies. News and political affiliations aside, this topic has reached the 'mainstream' and when Mr. Carlson and I agree, it's definitely time to pay attention. For what it's worth this is excellent and accurate reporting... USD

On several occasions this week clients have either jokingly or seriously mentioned redirecting or reallocating their equity portfolios into real estate. Why wouldn't they? 

I am NOT a financial advisor, but therein lies some of the value and perspectives of this post, very few financial experts are advising to diversify into hard, tangible assets like precious metals, real estate and commodities. 

As real estate valuations have risen dramatically the past several years, there is concern that the real estate market as become 'overvalued' or 'overheated.' I certainly have several significant real estate investors and clients that have temporarily 'paused' their searches in observance of economic conditions, but most of my mentors and $100M+ developer friends are forging ahead. 

Obviously I'm a real estate investor/broker/developer and so I also tend to be optimistically conservative in my assessment of real estate markets and opportunities in spite of my memory of 2008 (which feels all too familiar at the moment.) Yet my perspective is that although real estate valuations are increasing, it is at least partially contributed to by the same loss in purchasing power effecting consumers and investors in the grocery aisle. 

The risks of investment inactivity have multiplied considerably. Imagine if the government did not step in to bail out SVB and the associated speculative VC company deposits? Those reserves would have been lost and in a free market the repercussions of the implosion would naturally be deflationary. Instead, the decision was made to replace the lost capital and indirectly but not explicitly guarantee all US Bank deposits. 

This is obviously not feasible, sustainable or deflationary and creates a further risk escalation in the intensity of a subsequent decline in confidence or ramifications. Furthermore, if those depositors did lose their reserves, hypothetically would any have wondered what if? What if they they had diversified a portion or entirety of those same funds into hard tangible real estate? 

That certainly isn't going to disappear, and if the current risk of fiat and equity 'assets' is a 100% loss, is that justifiable? Take a look at your equities performance the past 18-24 months, could those 'returns' errr... loses have been better utilized? 

For well qualified borrowers there are some very favorable financing terms available..for example a client recently secured a turn-key Triplex that should return at least $15-20k NET annually with a TOTAL of $50k down payment. Even if those reserves were in a savings account, the presumed interest earned would be roughly .25% and more importantly the buying power of that capital has literally declined since the property was purchased. 

When we look closely at the real rates of return of real estate, gold or other 'non-risk' assets over let's say the past 20-30 years we discover extremely marginal differences in yields, but disconcerting volatility in equities. 

My point of emphasis is that the same strategies of wealth creation and preservation are rapidly evolving and real estate as part of an investment or retirement portfolio might be more intelligent and essential than ever. The Boomer generation is retiring at unprecedented rates and for the past two decades speculative growth equities have enjoyed a prophetic boom, which many of those same retirees are now utilizing to meet retirement and/or rising cost of living standards. Where will the stock market and other paper assets get the investment capital to support and justify the historic earnings and ridiculous profit to earnings multipliers? 

Nearly 15% of the S&P500's value is now concentrated in Apple & Microsoft stock. Why? It's a flight to quality..for safety. 

The elephant in the room is that the it's not just equities that are overvalued, it's the currency that all other assets, products and services are priced in. The risk to the US dollar is increasing and the value declining as the de-dollarization of the global economy accelerates. 

How else can one explain the unprecedented depreciation in the buying power of their dollars and reserves? A $100 bill doesn't last nearly as long as it used to....last year. Why would $100k or $10M? 

If inflation (money supply) continues to increase, or worse, a more rapid decline in the dollar's valuation, where can investors safely invest large quantities of legal capital rapidly? Hmmm...

Since I wasn't around during previous inflationary cycles, anyone with more tenure or experience have any real world input? 

I'll have more on specific de-dollarization forces next time..in the meantime we're experiencing extremely strong interest and sales activity of investment properties on the Oregon and California Coasts and silver is up 25% this month.