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RedlineAsetamountofRPMswhichyourenginecanputoutbeforeyouprettymuchblowitup.Thisisusuallywherethenumbersonyourtachometerturnred.-UrbanDictionary
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TheEconomyin2006
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TheEconomyin2008
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TheEconomyin2009
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AStrongerEconomy
• Createsjobs• Laborshortage• Wageincreases• Higherinflation• Higherinterestrates
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JobOpeningsinAmericaLookingforWorkers
Source:BureauofLaborStatisticsBLSreleaseonAug.8,2017
Total JobOpenings 6,163,000Construction 225,000
Manufacturing 388,000Trade,Transportation,Utilities 1,040,000Professional&Business Services 1,208,000
Education&HealthCare 1,222,000Leisure&Hospitality 819,000Government 575,000
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KeyIssues in2017:EconomicStrength
• FedwantstoraisetheFedFundsrateto“normalize”interestrates.
• KeepinmindthatcapratesandCREfinancingratesarelargelydeterminedbythe10-yeartreasuryrate,whichtheFedhasnocontrolover.
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TheNeutralRateofInterest
“Itisverydifficulttoknowwherethatso-calledneutralrateis.Butweprobablywillknowitwhenwearetherebecausewewillobserveacertaindegreeofbalance,whichwehadnotperceivedbefore,whichwouldsuggestthatwearesomewhereveryclosetowherethatis.”AlanGreenspan,FinancialAdvisorNews,June9,2005
“Researchsuggeststhattheneutralrealrateisprobablysomewhereina1.5percentto3.5percentrange.Thatprobablytakesustoaneutralnominalrangeofaround3.5percentto5.5%atthispoint.”JanetYellen,TheInternationalEconomyMagazine(Spring2005)
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BlackMondayOctober19,1987
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KeyIssues in2017:EconomicStrength
• Economystillhasalotofenergyleft• Oilandgasindustriesarerebounding• Single-familydemandisincreasing,butsupplyisconstrained,costsareincreasingandstudentdebtisagrowingproblem
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StudentLoansaBigProblem
“Analysisof1000collegesandtradeschoolsshowedthatatleasthalfofthestudentshaddefaultedorfailedtopaydownatleast$1ontheirdebtwithinthepastsevenyears.”
“Repaymentratesaregettingworse.”
Source:WSJ1/19/17
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KeyIssues in2017:FiscalPolicy
• Reducedregulationgoodformanyindustries• Taxreformbullishforjobs,butunlikelytohappen
• Infrastructurespendingunlikelytohappeneither
• Can’tpayfortaxcutsorbridgeswithoutaborderadjustmentorgettingridofloopholes
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KeyIssues in2017:InterestRates
• Laborshortagecouldcreatewageinflation• StrongerUSdollarwillmakeallimports
cheaperandoffsetinflation• Slowerapartmentrentgrowthwithreduce
inflationpressure• 10-YearTreasuryandcapratesunlikelyto
increaseverymuchin2017
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CPIInflationSince1914WW1
WW2andKorea
OilShocks
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OilPricesandInflation
OilEmbargo Shah
Deposed
ChinaStockpiling
IranBack
2.07% 2.34% 7.09% 5.55% 3.00% 2.57% 1.62%
InflationRatebyDecade
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InflationExpectationSurvey
0
2
4
6
8
10
12
Jan-78 May-83 Sep-88 Jan-94 May-99 Sep-04 Jan-10 May-15
Percen
t
Source:ThomsonReuters/UniversityofMichigan
UniversityofMichiganInflationExpectation©
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U.S.LeadingIndexofEconomicIndicators
-4
-3
-2
-1
0
1
2
3
4
1985 1990 1995 2000 2005 2010 2015
Percen
t
Source:FederalReserveBankofSt.Louis- FRED
LendingIndexfortheU.S.
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MonthlyIncreaseinJobs
-300
-200
-100
0
100
200
300
400
500
600
2010 2011 2012 2013 2014 2015 2016 2017
Chan
ge,Tho
usan
dsofP
ersons
Source:FederalReserveBankofSt.Louis- FRED
AllEmployees:TotalNonfarmPayrolls
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RateofGrowthinAverageHourlyEarningsofAllEmployees
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percen
tCha
ngefrom
YearA
go
Source:FederalReserveBankofSt.Louis/USBureauofLaborStatistics
AverageHourlyEarningsofAllEmployees:TotalPrivate
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Source:TheConferenceBoard
ConsumerConfidenceIndex
30405060708090
100110120130140150
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
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SmallBusiness“PlanningToHirePeopleInNextThreeMonths”
-10
-5
0
5
10
15
20
25
Oct-98
May-99
Dec-99
Jul-0
0 Feb-01
Sep-01
Ap
r-02
Nov-02
Jun-03
Jan-04
Au
g-04
Mar-05
Oct-05
May-06
Dec-06
Jul-0
7 Feb-08
Sep-08
Ap
r-09
Nov-09
Jun-10
Jan-11
Au
g-11
Mar-12
Oct-12
May-13
Dec-13
Jul-1
4 Feb-15
Sep-15
Ap
r-16
Nov-16
Jun-17
Net%ofR
espo
nden
ts
Source:NationalFederationofIndependentBusiness
PlanningtoHirePeopleintheNextThreeMonths
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SmallBusiness“NowIsAGoodTimeToExpand”
0
5
10
15
20
25
30
Oct-98
Oct-99
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
%ofR
espo
nden
ts
Source:NationalFederationofIndependentBusiness
NowIsAGoodTimetoExpand
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Q2-17 Q1-17 Q4-16 Q3-16
MoreJobs 36% 41% 35% 27%
LessJobs 16% 18% 30% 36%
LargeCorporateHiringPlans:Next6Months
Source:BusinessRoundtable
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NewPrivateREFundsRaisedinSecondQuarterof2017$29billioninclosed-inprivateREfundsclosedin2Q17.
$13.00billionforN.America$15.60billionforEurope$.74billionforrestoftheworld
74%wasforopportunisticandvalueadd
Source:Preqin
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NewPrivateREFundsRaisedinSecondQuarterof2017Arecord557fundsareinthemarketraisingmoneyattheendofJune,2017.
Theyaretargeting$177billionincapitalcommitments.
Source:Preqin
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PrivateRealEstateInvestment
$247billionin“drypowder”attheendofMarch,2017.
95%offundsexpecttomaintainorincreasetheirallocationtorealestate
Source:Preqin
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Source:NREI6/1/2017
Investmentsalesinthefirstfourmonthsof2017weredown17%fromthesameperiodin2016.
Theystillseemultifamilyasstrong….HNWIswillstayinmultifamily…Theydoliketriplenetlease(NNN)investmentssoarelookingatretailandofficeNNNassets.Industrialsingle-tenantnetleaseisalsopopularwiththem,butdemandformultifamilyseemsstrongest.
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Source:Bloomberg5/16/17
Bloomberg)— BlackstoneGroupLP,theworld’sbiggestprivateequityfund, toldinvestorstodialbacktheirexpectationsforpropertyreturnsasthe“greatrun”ofthepastfiveyearsbecomeshardertoreplicate.
LeeKok Sun,GIC’smanagingdirectorandchiefinvestmentofficerforrealestate,toldtheSingaporeforumthatabout7percentofGIC’sportfoliohadbeeninrealestate,lessthanthetargetedallocationof9percentto13percent.Asa“disciplinedinvestor,”GICsoldsomeassetsthatincreasedinvalue.Butsellingpropertieswhiletryingtoraisetheallocationwaslikerunning“fasterandfaster”onatreadmill,hetoldtheAsiaPacificRealEstateAssociationevent.
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PrivateRealEstateInvestment
LargeInstitutionsThatInvestinRealEstate
• PublicPensionPlans(CalPERS)• InsuranceCompanies(SunLife)• AssetManagers• PrivatePensions• SovereignWealthFunds(Norway)• Banks
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PrivateRealEstateInvestment
LargeInstitutionsThatInvestinRealEstate
• Stocks• Bonds• AlternativeInvestments
PrivateEquityPrivateDebtHedgeFundsRealEstate 5-12%allocationInfrastructureNaturalResources
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TheEnergyWarContinues
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OPECBreakevenPricestoBalanceTheirBudgets
$107 Bahrain$96 SaudiArabia$93 Algeria$76 Iraq$70 Iran$58 Qatar$52 Kuwait
Source:IMFandWSJ1/20/16
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NobodyKnowsHowLow2014
Oct3 Dropsbelow$90afterSaudipricecut
Oct13 Kuwaitoilministersays“naturalfloorforpricesat$76to$77
Oct17SaudiprincesaysArabianeeds$80to$90
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NobodyKnowsHowLowNov7 “At$70therewillbepanicinOPEC.”
-OPECofficialNov7 “Werepricestofallbelow$70,therewillbe
actionfromOPEC.”Nov7 OPECdoesn’texpectpricetofallbelow$75
Dec4 Saudissayoilcouldstabilizeataround$60,apricetheybelievetheycouldwithstand
Jan6,2015 WTItradesat$48
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NobodyKnowsHowLow2015
Apr17 “TherelentlessincreaseinUSoiloutputappearstobeatanend.”WTIat$56
May6 WTIoilpricegoesabove$60.
June IranandtheAyatollaharenewbusinesspartners
August Oilpricefallsbelow$40
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$65isa“FairPrice”
OPECpresidentMohammedbinSalehal-Sada saidaminimumpriceof$65abarrelis“badlyneededatthemoment.”Hecautionedthatthesecurityoffuturesuppliesisasrisk
becauseofthepriceslumpthathassqueezedoilproducerssince2014.
Source:AssociatedPress5/24/16
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TheSaudiBinladin GroupisthelargestconstructioncompanyinthePersianGulfregion.Theyhaven’tpaidsubcontractorsandsuppliersformonths.TheSaudigovernmentisdelayingpaymentforcompletedprojects.
WSJ3/26/16
MiddleEastBudgetStrains
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ThousandsofIndianworkersinSaudiArabiahaven’tbeenpaidformonths,promptingIndia’sgovernmenttohandoutfoodtohungryworkers.
Assisting10,000IndianworkerswhoNewDelhisaysarewithoutajob,payandfood.SomeworkersforSaudiOger reporttheyhaven’tbeenpaidinsevenmonths.
Source:WSJAugust1,2016
MiddleEastBudgetStrains
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SaudiGarageSale
SaudiArabiaKingwantstolist5percentofAramco,atavaluationofaround$2trillion.Lowestestimatefrombankersis$400billion.Hopestoraise$100billioninIPOinlate2018,andusethemoneytodiversifytheSaudieconomy.
“ThereissomuchemphasisinthehigherlevelsandlowerlevelswithinthekingdomthatthisI.P.O.willtakeplace,”hesaid.“TheirvisionistomakeSaudiAramcolikeExxonMobil,butmuchbigger.”