Below is a post from Bob Bach……I hope you enjoy…..rob

Manufacturers Rally

Analysts shuddered two months ago when the monthly Business Outlook Survey from the Philadelphia Federal Reserve plummeted unexpectedly, signaling a worrisome slowdown for manufacturers in the region. Although it covers only a corner of the U.S. – eastern Pennsylvania, southern New Jersey and Delaware – the survey provides an early clue to the more widely followed manufacturing index from the Institute for Supply Management. The dismal August reading from the Philly Fed raised fears that the economy was sliding into recession.

But the manufacturing sector is expanding again according to the October survey, released yesterday. The survey asks manufacturers a list of questions with three possible answers – increase, decrease and no change – and calculates a diffusion index for each question, which is the difference between the percentage of respondents citing an increase and those citing a decrease. The index rose from minus 17.5 in September to 8.7 in October, the largest one-month gain since the early 1980s. The index measuring activity levels expected in six months increased to its highest reading since April before the economy began to slow. The survey doesn’t point to robust growth ahead, but it is consistent with Grubb & Ellis research showing sustained demand for industrial space over the past two quarters and this quarter as well. Together with other recent indicators such as retail sales and weekly jobless claims, the Philly Fed survey suggests that the economy is fighting off a near-term recession.

Have a great weekend.

Best regards,
Bob

Robert Bach
SVP, Chief Economist
Grubb & Ellis
312.698.6754

Outrunning a Recession

A near-term recession is possible, but recent economic data suggest the economy is staying ahead of it. The latest is the September retail sales report released this morning by the Census Bureau, revealing a seasonally adjusted 1.1 percent increase in total sales during the month and a 0.5 percent gain in core sales, which excludes autos and gas. Motor vehicles led with a gain of 3.6 percent. Other strong performers included clothing & accessories (+1.3 percent), food services & drinking establishments (+1.2 percent) and furniture & home furnishings (+1.1 percent).

There are casualties in the retail space, too. Tim Van Noord, our intrepid research manager in Grubb & Ellis’ Boston office, confirmed that the Good Newstand (sic) is no longer in business. On his way back to the office, Tim said he passed shuttered Borders and Barnes & Noble stores as well. But in search of good news, Tim ventured to nearby Cambridge, where Google just expanded by 60,000 square feet and Microsoft has announced an expansion. Tim says people are “opting out of print media and using smart phones, iPads and other devices to get their news in digital form.”

Gap Inc.’s announcement that it will shutter a fifth of its namesake stores stands in contrast to the jump in clothing sales last month. Retail has long been one of the most competitive property sectors, and Gap’s problems are due mainly to overexpansion, merchandising missteps and aggressive competition.

Consumer spending, while not strong, has been enough to keep the economy afloat, which is important because it accounts for 70 percent of total GDP. The economy has been a factor in recent closings such as Borders and downsizings such as Gap, but the bigger factor has been aggressive competition from other retailers in the case of Gap and new technologies in the case of Borders.

Have a great weekend.

Best regards,
Bob

Robert Bach
SVP, Chief Economist
Grubb & Ellis
312.698.6754

I know it has been a while but I truly want to get back into the swing of things and keep this blog going.  Once recognized as one of the top ten commercial real estate investing blogs in the country….now….just another blog…maybe worse.  I hope to fix that in the next coming months.  So….I would like to kick things off …..again….

I would like to introduce you to my buddy and colleague, Brandon Saylor….he’s a writer and a good one at that…..check out his latest below.  Brandon is sometimes controversial but….I agree with most of what he says…if not all.  With Brandon’s permission….I will be posting Brandon’s writings on this blog.

Brandon Saylor

Anatomy of an Economic Bubble

This recession has taught me a lifetime worth of knowledge. Observing the catastrophic meltdown that occurred in 2008 seared lessons within me. One of these fundamental lessons is the understanding of economic cycles and the red flags of danger. In short, the economic meltdown of 2008 began with the bubble bursting of credit markets affecting everything from real estate to the stock market. It is paramount to understand the anatomy of a bubble and the natural economic cycles that ebb and flow through time. Below are the main stages of a bubble.

There are no time limits between each stage. The “stealth phase” is the 1st phase in which the asset is adhering to its core fundamentals. Subsequently, the “awareness phase” is when the value of the asset begins to rise above its fundamental value. In the third phase, the asset value explodes as the media begins to remark about its escalating value. A swelling number of investors eulogize the merits of the asset as they merge with the cause.

In the final phase, the value of the asset begins to dissipate. Many naive investors still believe it will continue to increase in value. The daunting reality sets in that the asset is overpriced and everyone tries to get out. Unfortunately, many are left behind as the value of the asset plummets to its long term fundamental value.

Conceivably, the most legendary and oldest, well-documented instance of a speculative bubble is the “tulipmania” that hit 17th century Holland like a bomb. The tulip became an instant hit upon its introduction to Western Europe in the mid 16th century. Dutch collectors developed a hierarchy of tulip varieties based upon their species and coloring. Because it was impossible to determine which variation would bloom from a particular bulb, the tulip grew into an asset of speculation. Before the 1630s, the bulbs were popular among the extreme wealthy and were flaunted to exhibit class. By the mid 1630s, the obsession caught on with the middle class and lower socioeconomic classes. The increased demand caused the price of the bulbs toescalate dramatically.

The market reached its pinnacle in late 1636 and early 1637, after the bulbs had been seeded to blossom the following spring. People mortgaged their homes and traded in their savings in order to buy rare and exotic bulbs to resale at higher prices.

In February 1637, as winter turned to spring the bulbs were close to flowering, consumer confidence evaporated and the market suddenly crashed. As the price collapsed, nobody would buy the bulbs, even though they offered them at one quarter of the sums they had paid for them. The tulip bubble burst is alluded to in the recent sequel of Wall Street 2.

Economic bubbles are a reality of any capitalistic monetary system. The point of this email is to recognize the red flags before it is too late. The first red flag is to recognize the larger macroeconomic forces that dictate the market. It is now understood the catalyst for any bubble begins with easy money. The Austrian School of Economics believes “asset bubbles occur when there is an extended period of low interest rates coupled with an expansion of credit. The availability of cheap money encourages speculation in one or more asset classes causing the price to escalate rapidly exceeding their underlying fundamental value.” The availability of cheap money promotes an over abundance of growth. Consequently, a bubble ensues. Bubbles can be an excellent way to make money if you get in at some stage in the “awareness phase” and get out before you reach the inevitable landslide. The key to success is to not be trapped when the eruption begins.

What is the next bubble? In the past decade, we have had the escalation and crash of the dotcoms, the oil bubble and the monstrous credit bubble following the oil crash. Is the stock market the next big bubble? The Dow Jones industrial average is now trading at 86% of its all time high of 14,164.53. Is it gold? Gold is constantly breaking record prices for the value of a troy ounce of gold. Could it be the bond market? Another energy bubble? At this point, it is hard to determine which market/asset is going to be the next bubble. However, armed with the knowledge of warning signs it will be easier to decipher the craze when an asset is going gangbusters.

Ultimately, there are two things about economic bubbles I want to leave with you today. Greed intensifies the problem and it is the definitive drive to astronomical prices. As they say, “Avarice has ruined more souls than extravagance.” And ask yourself does this type of speculative behavior make sense?  Does gold trading at $1,455/oz make sense? Is the stock market value reflective of the health of the economy? Does $107/ barrel of oil make sense? If common sense does not fit the reality of the time then maybe it is a good time to get out before it is too late.

Have a great weekend my friends!

-Brandon Saylor

Good stuff huh?

If you want to catch Brandon’s future writings as well as past writings….subscribe at the top right corner….

Until next time….rob

I am still trying to get back on top of things.  This summer has been extremely busy….but great too!

I have received a number of emails regarding my blog.  Honestly….I was surprised.  Thank you!  I need encouragement all the time and your emails and your request for me to write more has given me the inspiration to start again….so….here we go.

A jump start in the real estate market?  Well….yes and no.

I do most of my investing in the Southwest.  El Paso, TX is going nuts.  Did you know El Paso is experiencing a housing shortage?  A huge deal indeed.  Last year my partners and I purchased a down-and-out apartment complex and today it is running 100% occupancy…..that is after rent increases.  Yes….more rent increases on the way.  This apartment complex blew our conservative analysis out of the water.  Now….investors are heading to El Paso, TX from all over the country.  2500 units online to be built in 2011.  Experts are saying that is 5000 units short of what is needed.  Unreal!

Well…what about Albuquerque?  As an associate broker with Grubb & Ellis | New Mexico, I am seeing a hint of recovery.  We are seeing an increase demand for retail space and a little more activity in other real estate sectors.  Although we are no where close to what the demand was two years ago.  Albuquerque commercial real estate is doing much better than 2009.

Overall, I strongly feel this is a great time to invest especially in markets that have hit bottom and are now starting to see a hint of recovery.  In the Southwest, El Paso, TX is well on its way. Albuquerque, NM is starting to crawl out.  Keep an eye on Arizona and Nevada….I am predicting that it will take a little longer for them to hit bottom.  Hard to believe it could get worse for those states huh?  Maybe I am wrong.  Either way….the time to buy is here.

Until next time……rob

‘A whole lot and a whole not’ sums up the last few weeks here on the blog.

How long has it been?  Well, it has been one heck of a ride for the last few months.  I have been attending a few luncheons, a couple seminars, and a handful of meetings and they are all saying the same thing:

‘Cash-rich investors are sitting on their money waiting for commercial real estate to hit bottom.’

Once it does, the assumption is the investors will jump in with both feet.  This is what is called vulture investing.  You can read more about it HERE.

The belief is that there will be a dramatic tipping point sometime late this year or early next.  The assumption is that this ‘tipping point’ will start with the banks doing a mass liquidation of assets that are on their books.  This huge sell off will be a mountain of discounted assets in order to move the assets quickly.  This will led a domino effect that will dramatically pull values down even more.  I guess the real question for me is what is taking so long?   We are seeing a little bit of liquidation here and there but not what everyone was expecting.

Although there is some positive press that things are turning around.  Most experts don’t buy it.  What do you think?

When a question like this comes up, I start following the money.  The problem is the money is not going anywhere….hence…there is my answer.

Until next time…..rob