As we write this post on Monday, August 5th, the equities markets are moving sharply lower in response to a variety of economic factors.
At the top of that list is the latest news regarding the ongoing squabble with China as the world’s two largest two economies wrestle over terms of a new trade policy that both can live with.
Threats of tariffs and actual tariffs levied by both countries has been ongoing, as have the accusations about the Chinese government deliberately devaluing the yuan to counter the tariffs on Chinese goods sold in the US.
The finger-pointing has flared up on multiple occasions and that has spooked equity markets around the world repeatedly, increasing volatility and causing investors to go on defense, at least until the next good news on negotiations hits the front pages of the newspapers.
A while back we posted our take on what we call the Psychology of Decision Making, and this morning’s equities scare reminds us of the thoughts we shared with you back then. If you’ll recall, we described decision making as a process that runs along a continuum that is offense-minded at one end, defense-minded on the other, with a more neutral or wait-and-see perspective in between.
An offensive strategy is one that is more aggressive and optimistic. We think it is safe to say that the Dow’s bull run over the past few years has been driven by investors who have been on offense. Today’s whiplash to the downside is caused by a collective shift to the more defensive end of the continuum. Some investors are taking their profits and sidelining their cash to use to pounce on bargains when the market moves back up. Others are moving to the safety of US treasuries, (considered riskless), as evidenced by a sharp drop in the benchmark 10-year Treasury yield to a multi-year low.
Other investors may be transacting today to rebalance their equity portfolios because they see trade woes as impacting one sector more than another. The list of reasons goes on and on, and no one really knows what investors are really thinking.
What we do know is that, when you combine them all, it has moved the needle around the world in a matter of hours.
So, what does that mean to you as a commercial property owner? Is your property suddenly worth less because the Dow had a lousy day? Probably not. That said, it may cause collective decision making to move toward the defensive end of the spectrum over the next few months, as buyers and tenants are reminded of and react to an increase in uncertainty.
That could cause a shift in demand for real property that is too subtle to identify in matter of days.
Real estate market shifts are analogous to glaciers while equity markets behave more like hurricanes. One is slow, the other fast, but both have enormous power and leave a lasting impact on the terrain. We think the key to good decision making regarding investments of all kinds is to be in a constant state of readiness. That means keeping up with market trends and making good judgments about what we need to action on and what just to keep an eye on.
Today’s volatility could be just another blip on the radar screen, a flock of birds we mistook for a squadron of jets in our air space. Or, this trade business could be the catalyst to a coming recession. We don’t know and neither does anyone else. What we do know is that the better informed everyone is and the more planning people do to prepare for stormier weather, the better.