Archive for commercial real estate
The Führer Principle – Brandon Saylor
Posted by: | CommentsGreetings from Albuquerque, NM….
Below is an article from my friend Brandon…..again. He writes such great stuff….that….for obvious reason….I like to post it! Enjoy…until next time….rob
The Führer Principle
In grade school, I remember asking myself how could the German people elect someone as evil as Adolf Hitler. How could they allow such a monster to become supreme chancellor? Understanding how it happened is very important, mainly so it does not happened again. The significance of this newsletter will only make sense by looking through the lens of today’s events. Many of the main ingredients that led to the Nazi take over are present today. Recognizing the circumstances is the solution to history not repeating itself.
The beginning of the end for the Weimar Republic began with the Treaty of Versailles in 1919. For the German people, the treaty was humiliating. The treaty placed heavy restrictions on Germany much of which were embarrassing for the once proud nation. The German army was reduced to one hundred thousand solders and arms for citizens became non-existent. The initial German economic fatalities due to the treaty were shocking. Germany’s territories vanished overnight. Germany lost approximately 13.5% of its total land mass, 13% of its industrial productivity, and more than 10% of its population. Additionally, the loss of important mining regions such as the Saar and Upper Silesia resulted in a loss of some 74% of iron ore and approximately 25% of its coal reserves. Historians and economists have long deliberated the real effects of the treaty but one thing is for certain it lead to “deprivations that shattered their faith in the democratic process and left them cynical and alienated.” –G.A. Craig
Germany’s economic situation never improved. To keep up with the stringent demands of the treaty, the Weimar Republic faced hyperinflation never seen before in history. The German Mark ratio to the U.S. dollar was 4 to 1 near the end of the WWI. It was 8 to 1 in 1919, 250 to 1 in 1921, and 2000 to 1 in 1923. The Weimar government, at various times, faced food shortages, massive unemployment, and an unprecedented economic depression. By 1932, some 6 million Germans were unemployed. Millions of them were homeless living on the streets relying on soup kitchens and charity organizations. “Men standing hopelessly on street corners of every industrial town in Germany; houses without food or warmth; young people without the chance of a job. All these things explain the bitterness which burned in the minds of millions of ordinary Germans.”
The escalation of political violence in Weimar Germany must certainly be factored in as a contributory reason for the country’s political volatility. Beginning with the emergence of the Freikorps, which later became the brutal SS, formed units immediately after the declaration of the Republic. The tendency toward violence became entrenched in Weimar politics after the 1919 assassinations of Karl Liebknecht and Rosa Luxemburg. Large protests and riots became an all too familiar sight for the citizens of Germany.
Among the widespread disarray and frustration, the basic notion of a government was being questioned. What type of government could lead and govern the will of the people? This ongoing debate became known as the Führer Principle. The Führer Principle is established on the acknowledgment that the true will of the people cannot be revealed through plebiscites but that the will of the people in its natural and virtuous state can only be articulated through the Führer. Therefore, a difference must be drawn between the theoretical will of the people in a parliamentary democracy, which simply echoes the discord of diverse social perspectives, and the true will of the people in the Führer-state. Hitler took the Führer Principle and redefined it as himself…he was the Führer. Redefining the Führer was nothing short of audacious. It was captivating and alluring to many who were famished for change.
Many of the governing members in the Reichstag (congress) struggled to tame and communicate effectively to the youth of Germany. The Reichstag members continually doubted the youth’s ability to recognize a just government. Keep in mind most of Germany’s youth grew up in this chaotic state. Their view towards the government was distorted to say the least. The Weimar Republic only lasted 14 years but before that Germany spent the last 5 years in battle. A huge cohort of individuals only knew suffering and turmoil. Disconnect between the defenders of the former Kaiser rule and much more progressive governments were mounting daily. During the short lived Weimar Republic, Communism, Socialism, and a whirl of leaders/dictators were fighting for control.
Hitler knew very well that the youth’s mind were especially susceptible. This is exactly why he began with them. In the beginning, his messages were engineered for the youth. He knew the youth would be prone to messages of change and optimism. Joseph Goebbels (Hitler’s Minister of Propaganda) used propaganda methods to manipulate the masses. It was this desolate desire for change that gave Hitler his power.
The straw that broke the camels back for the Weimar Republic was the American Great Depression. The stock market crash of 1929 sent shock waves across Europe. The crash knocked Germany into the gallows. It was Hitler’s time to move. On September 14th, 1930, the Reichstag elections were held. The results were shocking. The Nazis had entered the register as the ninth and smallest of Germany’s political parties. The German people voted. The Nazis controlled 107 seats after that election. In November 1932, Hitler was defeated in the presidential election to WWI veteran Paul von Hindenburg. He received 42% of the votes. Hitler decided to enter a coalition government as chancellor in January 1933. Upon the death of Hindenburg in August 1934, Hitler become successor by popular vote.
Today, we are suffering the ongoing effects of the worst recession since the Great Depression. We are facing a global economic contraction. Greece is on the verge of insolvency and the US is limping along. Worldwide riots and protests have plagued the streets invoking for revolution. Frustration levels are swelling. This is the formula for calamity. However, it begins with the youth. Vladimir Lenin famously referred to youth uprisings as “useful idiots”. With the exception of the American Revolution, most revolutions in history conclude with a radical party seizing opportunity out of the political madness. People such as Hitler, Mao, and Lenin took advantage of a chaotic situation. I do not foresee a Weimar revolution of this magnitude anytime in the near future. Nevertheless, if we are not careful and mindful of the situation it becomes an unquestionable possibility. Education and knowledge of the truth is the only thing that will prevent history from repeating itself.
Have a great weekend my friends!
Brandon Saylor
-Associate
Manufacturers Rally – Bob Bach
Posted by: | CommentsGreetings!
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,
BobRobert Bach
SVP, Chief Economist
Grubb & Ellis
312.698.6754
United States At a Crossroads
Posted by: | CommentsOn August 6th 2011, the United States made history by losing S&P’s perfect AAA credit rating. We have held the perfect credit rating since 1941, 70 years of supremacy. The United States is at a crossroad. We can follow the path of countries that have lost their rating, survived, and eventually prospered again or follow the path of countries that have tried to spend their way out of insolvency. The choice is ours and a choice we should be thinking about for the 2012 election.
Before I jump into the history lesson for the day, let me set the context by explaining the elementary moral of the laws of economics. As they say, “economics is the painful elaboration of the obvious.” And while this old joke is true, the laws of economics do not bend or bypass stature. This is why we call them laws. There is no immunity to a government or an individual who accumulates too much debt. You either have to spend less and balance or face insolvency. The same law of economics applies to the United States Federal Government.
Our first option is to implement austerity measures. Australia, among other countries, should be looked to for inspiration. Australia went through a downgrade experience. In 1986, both Moody’s and Standard and Poor’s downgraded Australia’s foreign currency rating. Australia was downgraded a second time in 1989, after little action was taken to make the necessary changes. The shockwaves of the second downgrade sent Australia into a deep recession. The treasurer, Paul Keating, cautioned that Australia was in jeopardy of becoming a “banana republic.” Instead of running budget deficits and playing the blame game, he altered the direction and, after two years, delivered the first surplus. “But that did not get our credit rating back,” Keating said. “We did not recover our AAA rating until 2003.” It took a little over 17 years after that first downgrade for to Australia completely recover.
Canada also endured a manifold stage downgrade over a period of several years. In October of 1992, S&P dropped Canada’s foreign debt rating by one notch from AAA to AA+. Interestingly, there was little impact on Canadian markets. Moody’s followed S&P and downgraded the foreign debt rating by one notch. The 10-year note increased 0.45% over the subsequent months and stocks plunged 6%. In April 1995, Moody’s downgraded Canada again. In reaction to the downgrades and severe negative economic news, Canada enacted strict budget reforms. Prime Minister Jean Chrétien slashed federal spending by a monstrous 20%. He fired 23% of public sector workers, raised taxes, cut defense expenditures by 15%, lacerated certain subsidies by 40% to 60% and eradicated some ministries completely. Canada did not regain the prestigious AAA rating until 2002.
There are two things to be cognizant of in the next few years. Both Australia and Canada reported minor hiccups in economic growth after the 1st downgrade. It was only after the second downgrade did both countries experience a chain reaction to brutal economic consequences. They also reacted with swift and bold changes only after the second downgrade. If history is any guide, not much will change with the 1st downgrade. As it sits now, S&P has the United States on a negative outlook. It only seems reasonable to assume we will be downgraded again. A second downgrade seems especially eminent because Congress has such a wide ideological rift in remedy for the debt problems. The second thing to be aware of is the status of other AAA rated countries. Besides Australia and Canada there are 12 other countries with a AAA credit rating. The other countries are Austria, Denmark, Finland, France, Germany, Hong Kong, the Netherlands, Norway, Singapore, Sweden, Switzerland and England. In the near future, I can see most, if not all, of the European nations challenged with a downgrade. France and England seem especially vulnerable in these volatile times.
Option number two is to inflate our way to “prosperity”. Quantitative easing is a fancy way of saying the Fed is going to print (or as they say “digitize”) money to ease our debt and stimulate the economy. Hoping that this will pave a way for a brighter economic climate is just as wishful as magically finding the other side of the rainbow. It does not work. The by product is always inflation or hyperinflation. Inflation is a law of economics. History is my witness.
Think Weimar Republic, Germany, post World War I. The German Mark ratio to the U.S. dollar was 4 to 1 near the end of the war. It was 8 to 1 in 1919, 250 to 1 in 1921, and 2000 to 1 in 1923. Hyper-inflation hit so hard that newspapers sold for $100 billion marks! It was reported that most people were paid by the hour so individuals could purchase goods during their lunch break before the mark slipped further into the value of nothing.
In 1989, after years of massive budget deficits that were financed with borrowing from abroad, the Argentinean government resorted to the printing press. Hyperinflation soon kicked in. It was reported that grocery stores did not price any inventory. A man with a microphone would broadcast the prices of numerous items, frequently increasing the price every few hours by 30% or more. Workers would get their pay in cash and dash to the store to buy anything. By the end of the week their pay would be worthless.
Zimbabwe has been plagued for years with colossal deficits. In 2008, Zimbabwe’s annual inflation rate reached 516 quintillion per cent, that is 516 followed by 18 zeros. For the common Zimbabwean, the end result is atrocious. They must spend money as soon as they get it before it loses its value. The dysfunctional economy means that goods are in dreadfully short supply and they must spend hours searching for things to buy.
Of course, these are extreme examples however it goes to show, inflation is not a theoretical issue; it is reality. There are many other examples such as Hungary (1946), Japan (2001), and the United States (1933).The history and consequences of hyperinflation is required material in most Latin American schools. The United States is not exempt to these fundamental laws. Expect QE3 to be on the horizon despite many assertions to the contrary.
We are at the crossroads of a very important historical decision. Quantitative easing is the hail marry of economics. It is the last resort. For the sake of the future of this country, I hope we can find a way to reduce federal spending and find a way to balance. It really is the only way of out of this hole.
Brandon Saylor
-Associate