By: Ronald D. Struck
September
17, 2001
A WAR-ECONOMY
The events of September 11th and since make me very nervous. Now,
the public must consider how to best prepare not for a
"new-economy" but a "war-economy."
The new-economy was evolving based upon the
assumption that information was king.
It could capitalize upon virtually open borders that supported
efficient communications, transportation, and travel.
In the war-economy of terrorism, borders are closed, and
communications, transportation, and travel strictly monitored and
controlled, and therefore much more expensive.
This is a direct enemy to the formation of an efficient
new-economy.
I don't know what's going to come out of it, but
my gut tells me the market will be extremely volatile until people get
familiar and comfortable with the new rules for efficient investing
and running businesses in the war-economy.
During this transition, there are many scenarios that are very
bad - depression, war-related kinds of things.
Consumer confidence could go in the tank causing
real estate values to plummet. Foreign
holders of U.S. bonds, especially from the mid-east, might start
dumping their U.S. Treasury bonds and, try as he may, Greenspan won't
be able to keep interest rates down, which will kill the mortgage
business. Then we could have what is fondly referred to as
"stagflation," concurrently falling real estate values and
higher interest rates - the worst possible market conditions for the
real estate business.
Think about the probability that values might go up relative
to the probability that they might go down.
Add to that the potential gains relative to the potential
losses. Even if you think
it's more likely values will increase than decrease, but you also think
that a best case increase is 10% and the worst case decrease is 40%,
should you be in or out. In such a
highly volatile, uncertain market, many more things can go wrong than
can go right. Be
careful, there could be a lot of blood on the street.
I recommend real estate investors remain on the
sidelines until the air clears and the risk-reward relationships are
more balanced.
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