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What is really going on?

Here was a frightening headline on NPR earlier this month:

“Millions of Americans Skip Payments as Tidal Wave of Defaults and Evictions Looms”

It sure seems weird right now.  Consider the following:
  • Record unemployment and stock market highs – at the same time.
  • Speaking of unemployment, last week’s jubilation that there were *only* 1.9 million, and the most recent week of 1.5 million jobless claims
  • There seems to be a global pandemic still, while also in this country there is an unprecedented rise in social unrest (large gatherings of people), and people appear to be going back to ‘normal’ 
 
There are also reports of businesses “coming back,” and previously furloughed employees being brought back to work.  I don’t doubt that’s the case.  However, look at the notice posted on the 24 Hour Fitness close to where I live:

Yes, you read that correctly: 3 months of rent was $360,000+. Just a guess, but sure seems like this fitness facility will not be re-opening. What else won’t be re-openeing? How will these circumstances flow through the economy?

I am not trying to be the downer at the party – really, I’m not. I am just pointing out that things do not appear to be…normal.

Take the residential real estate market here in the Denver Metropolitan Area (often referred to as the Front Range). Activity (homes going pending/under contract) in May was at a record pace. If early indicators in June hold, by the end of June the Front Range real estate market will be just about on par with the average activity levels of the past 7 years.

On the other hand, I have gotten numerous calls from people looking for deals. They believe the sky is falling and subsequently there should be amazing deals in real estate.

THERE AREN’T ANY!!! (At least not right this moment.)

I explain what is happening, and people think I am pulling their leg, or that I don’t know what I am talking about. I can assure you that neither of those are the case. The numbers are very clear – there is no misreading it.

What is not clear is the pattern of activity that is taking place. All real estate is not transacting at the same pace and right now there seems to be no rhyme or reason to it. As one of my peers commented to me, “It’s like the real estate market was tossed up in the air, and as it falls down we are tying to figure out the pattern – and there isn’t any.” Nothing makes any sense.

Which reminds of something I heard from Adam Robinson a few years ago on the Tim Ferriss podcast. If you have never heard of Adam Robinson: rated chess master (and mentored by Bobby Fischer), co-founder of The Princeton Review, in the early 90’s became active participant in the emerging field of artificial intelligence, and is currently a global macro advisor to some of the wealthiest funds and families in the world. This guy is impressively smart. Oh, and he’s pen pals with Warren Buffett. Anyway, he talked about a phenomena he referred to as “this doesn’t make any sense.” Anytime we look at something, and we cock our head sideways, and say, “this doesn’t make any sense,” we often dismiss it. We think something doesn’t make sense according to us. What’s often wrong is our model of the world. What is happening is what is happening. If it makes no sense to us it is because there is something underneath/hidden from our view.

I am looking around and saying, “this makes no sense.”

I don’t know what I don’t know.  What is missing from my model that explains what is happening? 

If you know what is missing would you mind letting me know?

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Steven Ross

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