The view from space — Part 1

Ken Rosen is a smart guy.  He’s the co-chair of the Fisher Center of Real Estate and Urban Economics at the Haas School of Business at UC Berkeley and the investment advisor of choice to some of the biggest players in real estate, from banks to insurance companies to REITS.

Once or twice a year I spend the day in a windowless hotel conference room listening to Ken and some of the biggest heads in the real estate biz  expounding on the state of real estate. These guys (and they are mostly guys) look at real estate through the lens of global macro-economics and international finance.  Want to know where interest rates are going?  They study yield curves on T-Bills and monetary policy in the capitals of Europe.  This is “the view from space.”

There’s a lot of information that I can’t actually put to use:  I don’t really need to know whether the smart money is investing in CMBS’s (commercial mortgage backed securities) because folks like you and I can’t buy them anyway.  But I always come away from these conferences with a better sense of the “big picture,”  of where real estate is headed in the broader context of the national and global economy.

Right now, the picture ain’t pretty.  Here are some highlights from Rosen’s economic wrap-up.  More to follow in other posts:

  • Recession or Depression? Rosen puts the chances of a deep recession at 70%, a moderate one at 25%, and a full-blown 1929-style depression at 5%.  This was echoed by many speakers.  The major global governments, including China, are throwing so much money into the system that a depression seems unlikely — but it’s still a possibility.
  • The credit crunch: Inter-bank interest rates are coming down, which means that bank confidence is improving.  Easing credit should follow.
  • San Francisco should weather the storm reasonably well because of its diversified “global gateway” economy and the fact that it hasn’t been overbuilt.  Not so, the East Bay.
  • The dollar should continue to improve because, believe it or not, the US economy is doing well relative to the rest of the world.

What to invest in?  More anon.

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