HOW WILL OUR ECONOMY RECOVER?

One analogy that I often draw from the depression that our region suffered in the 1980’s is that an economy in recovery is like a large ship turning around in the ocean.  Unlike the stock market that seems to turn on every word, rumor, tweet, and news story, the reality is that on Main Street, where each of us reside, news seems to affect many of our businesses much more slowly. This is especially true when it comes to real estate.

Now I’m probably the last person on earth who actually knows what goes into turning a large ship when it is out on the open water, I can only imagine the challenges that can come up when trying to get an estimate of how long it will take for the ship to make the turn. First off, the answer is dependent on the type of ship (cruise ship, cargo ship, battleship) and the weight, etc. What are the conditions of the tides and the weather? I would imagine all of these variables determine the exact time it takes for a ship to turn around. Just remember the Titanic!

With regards to our economy, we are in the midst of feeling the impact attributed to the Covid Virus. The economy has been devastated and we are seeing unprecedented unemployment that for some, will cause tremendous hardship.  Most states are re-opening and that is positive. I think we can now say the economy is in the “recovery mode”. However, there is a very large difference between “recovery” and “recovered”. 

Recovery will take a long time and there will be many obstacles that will need to be overcome before we can use the word “recovered”. Just like the turning ship, there is no guarantee that the weather or tides will remain the same during the entire process. While we are starting to see the enthusiasm of the economy opening up in many areas, the long-term still has a lot of question marks. Take the price of oil for example, just a few weeks ago, it was trading below $0.00 per barrel. Did we even think that was possible? Last week, it showed clear signs of stability as more of us drove, had places to buy products, generated demand, etc. Yet, does anyone believe the travel industry will recover enough in the next 6 to months to a year to create anywhere the demand for oil that existed before the Virus shut down the economy? Restaurants opening are great news, but at 25 to 50% capacity, many in the industry do not think they can survive at this level. Even if allowed 100% pre-Covid seating levels, would people go? How can the economy be “recovered” to pre-Covid levels with these businesses and many others not operating at full capacity? And it’s not just in the United States, it’s global!

As the economy recovers from the effects of the Covid Virus, there will be many changes to our society. As an investor, I will try to look forward and invest in companies and projects that will serve the future, not our past. Unlike liquid investments, where one can buy and sell with a phone call or over the internet, real estate investments, both fee simple and private, are different. They are not liquid, so by definition, things move slowly. But that can be a good thing as it allows one to get information which can assist in making a quality decision.

I remember the 1980’s where the talk going around was “what happened to America”? It seemed as though our country was stagnant. Where were the great American companies? The industries that had built our great nation seemed to be languishing. The Japanese companies seemed to be leading and the United States was considered past its prime! However, since then, people living in the U.S. have founded many of today’s great companies, Microsoft, Apple, Amazon, Google, Facebook, have all led the way. The message in this is NEVER underestimate the strength of American will or ingenuity. 

The Virus has also, once again, shown me how fragile our health is. It has made me re-analyze what the world will look like to my beneficiaries if I’m no longer able to “captain the ship.”

Real Estate Legacy Planning and Consulting (RELP) was founded to work with people who have real estate investments, either active or passive ownership, as part of their investment portfolio, or who have inherited them and need non-conflicted advice. If you have made these investments, and have heirs and beneficiaries that do not have real estate experience, RELP is here to help. Try taking yourself out of the equation and ask “without me and my knowledge, how would my family and advisers cope in a time such as this”. RELP’s goal is to be provide comfort and knowledge during this storm (or any other), and partner with individuals and entities for the brighter days that are sure to follow.

 Take care and stay safe,

 David Aaronson

713/927-1693

[email protected]

www.relpconsulting.com