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Investors are unsure of future trends. American consumers pulled $33 billion out of mutual funds last month because of uncertainty. The opportunity and risks are hard to understand. However, the spread between short term and long term bonds suggest a very low probability of a new recession -- less than 20%.
The spread between the short term and long term bond is normally a reliable barometer. Add further that with rates so low large corporations are reducing their debt costs. At the same time, corporate America is sitting on over 1.6 trillion dollars and banking is in a similar position with $1.3 trillion in their coffers. Last, but perhaps biggest of all corporate profits have surged over 36% in the past year. This is the largest move on record.
In normal circumstances statistics like this would support rapid expansion. However, the American consumer is still increasing savings with the rate up to 6.6% annually recently. And, consumers continue to rapidly improve their balance sheet with 21 straight months of continually falling credit card debt. These statistics are putting downward pressure on consumer spending and keeping the economy in shackles.
Nevertheless with two years of growing profits and falling corporate debt, steadily increasing consumer debt, and steadily falling consumer debt load, the likelihood of a sharp fall is not great. In fact, the numerical weight of these factors provide growth even if it is muted a very strong foundation.
At the present time, investors should be taking advantage of the low rates to capture high quality investment properties and lock themselves in for a long term strong improvement in the U.S. economy. Caution about the type and market locations is prudent given many other factors like increased rentership, likely long term slow home construction, and trends against smaller markets and markets without strong information business bases.
Blake Ratcliff (US Naval Academy Graduate & Marine Officer, Serial startup entrepreneur, COO/CEO, multifamily / residential investment founder, and property manager).
Blake's crafted 100+ business plans, prepared and delivered 1000+ investor presentations, and is an expert financial modeler. A deeply experienced real estate business person and startup business expert, Blake hones your Business plans, reports, and presentations.
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