Eq: Total Market

(New York)

Many in the industry think a big bust in commercial real estate (CRE) is coming. If you think of the residential real estate market, you probably think about tight supply, rising prices, and more buyers than sellers. The commercial real estate market is currently characterized by the opposite conditions. A building boom and a glut of new CRE debt is threatening to wipe the sector out. The sector looks very vulnerable to rising rates because the massive amount of debt (which just hit a record) and the overindulgence of borrowers. So how can one play the fall? Oddly, the best strategy might be to buy homebuilders, who will be much less sensitive to rate rises, and sell REITs.

FINSUM: The paired strategy sounds like a good one, but the bigger theme here is that a bust in CRE is reportedly on the horizon.


In a cruel twist of fate, guess who the biggest losers are when a country imposes tariffs on imports? Its own exporters. The reason why seems to be two-fold. Firstly, the tariffs on imports take cash away from foreign countries to buy exports. Secondly, such tariffs often lead to retaliations, which then shrink the size of exports (e.g. what is happening to Harley Davidson right now). The link has been well understood by economists for almost a century, but new research shows it concretely in trade flows. Overall, the trade balance does tend to improve, but exporters suffer significantly.

FINSUM: The problem is that trade wars are almost a zero sum game. That said, the US has a better bargaining position than usual in this one.


It was only a matter of time until US industry started to feel the pain of the current American-led trade war. Now it is happening. US manufacturers are reporting rising costs and difficulties in sourcing ahead of the tariff deadline. These companies say that the metal tariffs, combined with the threat of falling export business, all caused by tariffs, is threatening to make them stop hiring or making new investments. “We had a good year last year, and we’re in the middle of a good year this year. But we are very concerned about the tariffs”, says an Ohio manufacturer of excavation equipment.

FINSUM:That penultimate sentence is the most scary of all—that manufacturers may stop hiring and investing. That would be a leading indicator of a coming recession, especially if it has a trickle down effect to other sectors.

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