Bidenomics Flopping?, Pimco Is Bearish, & REITs Are On Sale

Biden unveils his 2024 sales pitch for “Bidenomics,” but most Americans are unimpressed, according to recent polls.

Plus: Bond fund giant Pimco is preparing for a hard landing, and REITs remain on sale. (But is it time to buy in?)

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On The WealthChannel Podcast, we unlock the world of wealth, money, and finance. Hosts Jimmy Atkinson and Andy Hagans deliver unfiltered views on the most important news that investors need to know right now.

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Jimmy: Welcome to The WealthChannel Podcast, the show where we explore the world of wealth, money and finance. He’s Andy Hagans. I’m Jimmy Atkinson. On today’s episode, Bidenomics is trending. Is the economy headed toward a hard landing? And is office officially dead? All these stories and more coming up soon. But Andy, take a look at this. I found some Otter Pops over the weekend. Do you find any Fla-Vor-Ice or Bomb Pops? I’m going to be sucking on this while you’re talking by the way. So give me some time.

Andy: You know, I saw a TV commercial for Bomb Pops the other day. I’m like, man, I don’t think I’ve ever seen a TV commercial for Bomb Pops. So I, last week when you called Otter Pops, you know, your Bull and I stuck out for Bomb Pops, maybe they’re both coming up. I mean, it’s a popsicle boom right now. This is July. This is like, this is peak popsicle weather, right? Yeah.

Jimmy: ‘Tis the season, man. You gotta get out there and get your family some, some Fla-Vor-Ice or some Otter Pops or some Bomb Pops.

Don’t mind me. This is pretty tasty by the way. Andy, you should check one of these out, but let’s move on to the meat of our episode today.

We’re talking, Andy, your favorite topic, Bidenomics. So this headline is from CNN Money. I know you’re a big CNN fan, Andy. The headline is, “Biden unveils his 2024 sales pitch for Bidenomics, but is anyone buying?”

So you know, if CNN is a little skeptical of Bidenomics, something must be up. Anyways, there’s some new PR, a new PR gimmick coming from the White House last week. They are leaning full speed ahead into Bidenomics. White House officials have actually been preparing a more comprehensive economic messaging push for months, according to CNN. And the decision to launch now reflects the White House’s settled confidence that the economy’s positive trajectory is sustainable.

But Andy, most Americans are convinced that the economy is in bad shape and not only that, they blame the president. According to recent polling, 34%, 34% of Americans approve of Biden’s handling of the economy. Wall Street Journal reports that average hourly earnings are down 3.16% since Joe Biden took office. Now the White House is a, they know they have a problem here.

They’re not stupid, or at least I don’t think they’re that stupid. Maybe you disagree, but they’re Trying to address this problem by leaning into it and redefining Bidenomics. Here’s a quote from the White House press release that was released last week. Quote, “Bidenomics is rooted in the simple idea that we need to grow the economy from the middle out and from the bottom up, not from the top down.”

Andy, is that what you think of when you hear the term Bidenomics or what comes to your mind?

Andy: Well, it’s interesting, Jimmy. First of all, you know, you mentioned you don’t think his team is that dumb. Maybe I would disagree. No, I don’t disagree. I think his team is pretty sharp to be honest with you. I mean, he’s president of the United States right? Obviously they knew how to campaign and a competitive primary, competitive general election.

Um, it’s, it’s one of those terms by dynamics where it kind of reminds me what, what are some other examples of this? Like, uh, critical theory or ESG, I feel like it’s going to quickly be used by the other side more than the, you know, by the opposition side more than the side that is cheerleading it. It’s, it’s, it’s.

Jimmy: Well, I think I feel like the term was rooted maybe over the last year or so I think Republicans were using it as a negative term toward the White House and the White House says, Okay, we’re gonna take this term and make it our word that we’re going to own this word. I think that’s kind of the sense I get at least. So they’re pointing out some of the good that’s come in the economy.

By the way, to their credit, like the economy does look pretty good. If you look at some of the numbers like the S&P 500 is just hit bull territory. The NASDAQ we just got finished with June, right? The NASDAQ had its strongest first six month period in over 40 years, or I think it was exactly 40 years since 1983. Unemployment is pretty low right now.

So I don’t know, maybe there’s something too leaning into it. It feels like, again, I’ve used this term since episode one, this Jekyll and Hyde situation where there’s a lot of negative sentiment about the market and the economy, and yet. You kind of look at the numbers. It’s not all bad, right?

Andy: Yeah, you’re absolutely right, Jimmy. I mean, this is the bull market that everybody hates, right? That I did predict and it…

Jimmy: Yep.

Andy: …seems to become into fruition. Not only the bull market come into fruition, but also the fact that everybody hates it, not everybody hates it, but you know what I mean? You know, the thing is, um, I think Biden in a way he’s in a tough spot. And another way I think he’s in the driver’s seat and none of this matters.

So here’s how he’s in a tough spot, right? Because as you pointed out, it’s Jekyll and Hyde and regardless of Technically all these economic indicators are doing well with the economy, but if consumers, if laborers, if employees nationwide, if they don’t feel good about their wages, if they don’t feel good about their take-home pay and what its purchasing power at the grocery store or the pump, it doesn’t really matter what the stats say when you’re a politician. What matters is what the voters think. They’re not happy with his performance.

There’s some data to back that up. You talk about Jekyll and Hyde. And you mentioned, well, a lot of economic indicators are really good. How about the housing affordability index? Right. So I’ve pulled up this link. It’s at the lowest level in over a decade and, uh, you know, even more unaffordable, um, th than before the great financial crisis. So the median American household would have to spend 43% of their income. to buy a median priced house according to the Atlanta feds, their calculations. I mean, that is very bad news for President Biden, right?

Because that’s something that young couples, young people, they’re really going to feel that and they’re gonna say, I don’t care how good the economy is or what according to your data, I can’t afford a house. I’m trying to start a family. So. There are a lot of things like this, you know, the student loan, uh, Supreme court decision, you know, so a lot of, uh, folks are going to be paying back their student loans that they haven’t had to do in a while. There’s just a lot of very personal things hitting people in a personal way that are going to make them feel not so good about the economy.

And I think, you know, Biden and his team, they’re beginning to be in campaign mode, right? And it’s the reason he’s in a tough position is because he’s the incumbent. So he has to run on his record, right? But then, you know, with Halsey and being unaffordable and the student loan forgiveness fiasco, he doesn’t just wanna run on his record. He wants to say, well, actually, these other guys, they’re to blame. What we really need is, you know, we need change. It’s hard to be the change candidate when you’re the incumbent, right? So that’s where he’s in trouble, right? Trying to have it kind of both ways where I’m the change candidate, but I’m also gonna run on my record.

But where it doesn’t really matter, I think in a sense, Jimmy, in terms of the election is that sure, his unfavorable numbers are very high, Biden’s that is, but so are Donald Trump’s, so are Ron DeSantis’s. And you know, if it’s anything like the last election, it’s probably not going to turn on the economy for better or worse, right? You know, here at Wealth Channel, you know, we were probably very aware of this. And what’s the famous quote? You know, it’s the economy, stupid. I don’t know that that’s true anymore. I don’t know that that’s true in the next election or that it was true in the last election. What do you think?

Jimmy: Yeah, I don’t know. It’s hard to… Well, first of all, I’d like to point out that we are still pretty far away from the election.

Andy: Baaaa!

Jimmy: I guess we’re about a year away from the primary conventions, right? But we’re a pretty long way off. I want to talk about student loan forgiveness.

Andy: They’re in campaign mode, Jimmy. They’re in campaign mode. I’ll stand by that.

Jimmy: Oh, absolutely. Absolutely.

Andy: It’s kicked off.

Jimmy: I just question how wise it is to start leaning into the economy so heavily when by all indications, it looks like we might be heading into a recession, although recession predictions have been delayed somewhat. I’ve got a few quotes here from another story that I was following. Actually, we’re going to cover this in the in the next story. But there’s several different folks out there, several different institutional investors that, um, that kind of were predicting that we’d be in a recession by now. We’re heading into a recession by now. They still think we’re heading into us into a recession, probably in 2024.

I want to, I want to talk about that a little bit more in the next story though. My question for you though, Andy, let’s talk student loan forgiveness for me. Cause I think that’s another one that not exactly Bidenomics, but it’s a, it’s a Biden policy flop. It looks like at the moment. with the Supreme Court ruling against the ability of the president to unilaterally forgive student loan debt.

And I don’t know, what are your thoughts on that? And by the way, I feel terrible for anyone who has student loan debt and then was promised it would be wiped out. And now all of a sudden, they’ve had the rug pulled from them. What a terrible feeling that must be. But, you know, is that a huge miscalculation by President Biden to begin with? To try to push that forward? And do you think he’s still gonna be able to succeed in getting it done in some other fashion, maybe through Congress this time?

Andy: Well, I mean, the fact that he tried to do it with some sort of a specious executive order, I think speaks to the fact that he can get it through Congress, Jimmy, right? If he could have gotten it through Congress, then that was plan A. So this was already plan B. And Nancy Pelosi even said that she didn’t think that this was constitutional and that of course it ended up being not constitutional. So this was already plan B. So I don’t even know what plan C would be, what statutory authority.

The Biden administration would claim if they try to have some other plan to forgive student loan debt, whether it was a strategic misstep or not, that might be some 3D chess that I’m not smart enough to figure out. But it kind of goes to my earlier point that Biden, he’s in this odd place where he’s trying to sort of run on his record. But then- when you look at consumers and how they’re feeling about the economy, they’re not feeling very good about it. So then he’s like, well, but I’m not really running on my record. I want to run as the change candidate who’s fighting these other bad people who either are in charge of that.

Jimmy: Yeah, well, the Supreme Court is the perfect bogeyman if you’re Joe Biden, right? He’s like, hey, I was forgiving student loans and then look what these Trump appointees did. They blocked it for no reason.

Andy: Yeah.

Jimmy: So, if you want more of these type of judicial figures, vote for the other guy, but if you want change, put me back in the White House.

Andy: Yeah, and I think that’s, I think that’s…

Jimmy: Maybe that’s part of the 3D chess.

Andy: And again, I mean, I think there are limits to that strategy of how motivational that’s going to be. I think what his team is banking on is whenever the Republicans have their nominee, whether it’s DeSantis, whether it’s Trump, maybe it’ll be someone else, that person’s going to have huge negatives. That person’s going to have a record that the media can go through or that the Democrats can go through. and point to all of the things they believe are huge negatives in that record.

So I think this is almost, you know, it’s, it’s almost, it’s a kind of a pro forma, Jimmy, that, uh, you know, we’re going to run on a record. We’re going to run a positive campaign. We’re going to pretend to do that for another nine to 12 months. And then it’s going to be a straight negative camp. I hate to tell you, it’s going to be just straight negative campaigning for the year after that. Um, I do think though, if, if you’re going to put me on the spot, with the student loan forgiveness.

I do think that was a mistake because as you pointed out, it was a long shot to begin with. Regardless of how you feel about the Supreme Court decision, objectively speaking, it was a long shot, that program, that the forgiveness would be ruled constitutional. So I do question setting up such a large portion of the population to have the… the rug yanked out from under them. I mean, how is that ever gonna be good for a person politically?

Jimmy: Yeah, well, I mean, again, the 3D chess, maybe he’s got the bogeyman now, he can blame the Supreme Court for it. But the other funny thing about student loan forgiveness, if we can talk tax policy and the economics of it, is it not a form of regressive tax, essentially? Are you not subsidizing folks who are better off than the median population?

Andy: Yep, probably Jimmy. But then with that statement, you are widening, wading into the world’s biggest minefield, right? Because then you could say, well, the mortgage interest deduction on taxes, isn’t that also regressive tax? I mean, the truth is there are all sorts of regressive taxes, implicit, explicit throughout our tax code and you know, politically they’re, they’re third rails.

Um, but yeah, I’m not going to disagree with you though. I mean, and, and I think, That, what you just said, what you pointed out, I think there were a lot of blue collar people, working class people, plumbers, electricians, business owners, maybe you’re an electrician who took out a loan to buy a pickup truck, which by the way prices on those exploded in the last 24 months, right? So it was a very expensive asset purchase.

But let’s say you took out a loan, bought a pickup truck for your business, that loan wasn’t being forgiven, right? So it’s kind of a moral judgment that certain loans deserve to be forgiven and other types of loans don’t. And I think that speaks to where the Progressive’s political base really is now, right? And so I think there was a whole other group of voters who were very sour or bitter, use whatever word you want. about the whole student loan forgiveness, maybe the Supreme Court declaring it unconstitutional, maybe it defanged the issue a little bit, right?

I almost would imagine 12 months from now everyone will have forgotten about it. You know, in the heat of the campaign, it’ll have just blown over.

Jimmy: You may be right. Well, I think it skirts the main issue, by the way, which is, what is the value of a bachelor’s degree or a graduate degree in this country anyway, that we have all these students who need their student loans forgiven? There’s has tuition gotten so far out of lockstep with the value that that’s actually being derived from these degree programs and students aren’t able to pay them back. Maybe the loans came by a little bit too easily. Maybe tuition is been increased probably a lot too much over the last 10, 20, 30 years.

But anyways, I don’t want to go down that rabbit hole too much unless you have some thoughts on that Andy, but we probably talk about just that topic for an hour or two.

I did want to turn our attention to well, one more point to put a pin in this, I guess, is I tend to think that this is a miscalculation that the White House is making because I think they are leaning into the economy where they’re already doing poorly. I get it by the way, I get that you have to do something. You have to change the messaging, change the narrative. But even if they are able to change the narrative, I think we’re headed toward a recession toward the end of this year. If not, then heading into 2024.

And do you really want to be using the word Bidenomics and leaning into economic progress, just as we’re hitting a recession, whereas as primary season ramps up and is the general election season. ramps up and with that, I think that’s a perfect dovetail to story number two.

And as a reminder, before we get to story number two, you’re listening to The WealthChannel Podcast. This is a show where we explore the world of wealth, money, and finance.

Story number two, though, comes from the Financial Times. The headline is, “Bond Fund Giant PIMCO Prepares for Harder Landing for Global Economy.”

So speaking of the economy and speaking of Bidenomics. And by the way, I just want to revisit the point I made earlier. There’s a lot good going on with the markets and the economy right now. The S&P 500 hit bull territory just a few weeks back. The NASDAQ just finished its best six months start to the year since 1983, but PIMCO’s chief investment officer, Dan Ivascyn says that markets are too optimistic about central banks ability to dodge a recession as they battle inflation in the U.S. and Europe.

So PIMCO was preparing for quote unquote a harder landing than many other investors. PIMCO says that typically lags in rate hikes are about five to six quarters. So we might not start feeling the pain immediately of all these rate hikes. By the way, I think we have started feeling quite a bit of the pain, although recession has come down a bit. Lending’s been a lot tougher to come by, but it’s, I don’t know, it’s been about five quarters, I think, since the rate hikes began, right?

So maybe we’re starting to roll into that time where we’re gonna start to see some negative repercussions. Anyways, PIMCO is repositioning their funds to be more defensive and more liquid. They’re starting to favor high quality government and now corporate bonds, anticipating that some corporate bond downgrades in the near term. So they’re holding a lot of cash to be in positions to snap up bargains on some of that distress debt moving forward. So by the way, these moves. are a little bit different than some investors, and yet they’re also part of a trend.

There’s a survey by Bank of America that showed that investors are the most overweight in investment grade bonds compared with their high yield counterparts since 2008. And we remember 2008, what the climate was like then. Andy, what do you think of PIMCO’s position here? Are we in store for a hard landing or a rough landing? Do you think they’re making the wise decision here with their portfolio allocation?

Andy: Well, I think for an asset manager, their size, I think that’s a prudent outlook for sure, but you know, I mean, I could definitely see a recession. I could see, uh, the, the stock market moving back into bear territory later this year into next year, for sure. I mean, you know, I don’t have a crystal ball, right? Neither, neither thing would surprise me to be honest, Jimmy. I wouldn’t surprise me if we totally skip a technical recession. It wouldn’t surprise me. If we are in kind of a middle ground model through, and it wouldn’t surprise me if we have a recession.

I’ll tell you what I’m not seeing though, are the ingredients for a severe credit crisis or like a severe financial crisis like we had in the financial crisis of 2008, 2009. What I mean by that, what has surprised me as credit has really dried up in the real estate markets and other markets is… how strong the underlying fundamentals of many businesses were. I’m like, let’s take the real estate market. You know, sure. Cap rates are up a little bit. Sure. Asset prices have fallen a little bit. Housing prices have fallen, but there was no widespread crisis. Right. Most homeowners are not underwater. Most of them have very significant equity in their homes that they own. Right. We just saw the, the home, uh, affordability. index at a low, so home prices have actually proven to be pretty durable.

So I think a lot of consumers do have a cushion of financial safety. Like it’s not like in 2008-2009 where so many people ended up having negative equity in their homes and then they got foreclosed on. So I think the economy is feeling some pain, but I’m not seeing how like a full-blown credit crisis would come about. And we saw a little bit of that with regional banks, right? We saw a little bit of hiccups in the, you know, in the banking system. And what did the fed do? They showed that, well, we’re going to backstop everything, right? Ultimately we’re going to be the backstop of last resort and that injects confidence back into the markets.

So I’m not seeing where a real severe crisis would come from, right? Now, maybe inflation stays sticky in the fours or or whatever and like, so that there’s going to be some pain and maybe rates stay elevated for a little while longer. Maybe housing prices dip a little bit, but to me, that’s not going to cause like a severe recession. Those might be the ingredient for a mild recession, if anything.

Jimmy: Yeah, well, by the way, Andy, PIMCO isn’t alone in what they’re doing here. A few other, a few other bullet points to consider Bank of America CEO, Brian Moynihan told CNN last week that he believes the U S economy could tip into a recession early next year. By the way, he had originally predicted it’d be this year. So he’s pushed that back. Vanguard economists wrote in their mid year outlook, not, not long ago that they see a high probability of recession and that quote, the odds have risen that it could be delayed from 2023 to 2024, end quote. And then JPMorgan Chase economist said in a note last month that there could be quote, a synchronized global downturn sometime in 2024.

So yeah, maybe we’re not headed toward a full blown credit crisis like we saw 15 years ago, Andy, as you mentioned, but how should investors play this if we truly are. heading toward a recession in 2024. What would be your advisor? What are you doing with your portfolio?

Andy: Well, as we’ve already talked about on the show, bonds are pretty good value right now. Right. So as, as investors, Jimmy, I think you and I had been trained by the past, you know, 15 years, 15, 20 years to sort of quietly hate bonds, quietly loathe them, albeit still including them in our portfolio. So I would say number one, you know, looking at your allocation, depending on, you know, with, with the bull run, if you’re under target. for your allocation to bonds, I think it’d be a great time to make sure you’re at least at whatever portfolio allocation you wanna be.

So maybe even increasing that allocation to bonds a little bit, right? That’d be number one. And number two, whenever I see stuff in the news like this, I hear it talked about a lot, to me, I have a hard time really getting too bearish. Because the more big names are talking about bear markets, talking about recessions, it brings to mind that old saying that a bull market climbs a wall of worry, right? And so the fact that a lot of people are concerned about a recession, think we may already be one thing, one’s coming, yada, yada. A lot of times that can provide a little bit of underlying strength to the market. So I would say number two, don’t panic, right? I mean, even this week, I’m looking at making a private investment, energy investment. in the long run, I’m a bull, right?

I’m not personally battening down the hatches. That being said, always have that top-down allocation, right? You have a certain amount that you want to keep in bonds, that you want to keep in more conservative investments, so you can psychologically handle when the next bear market comes. And Jimmy, it’s only a matter of time it’s going to come, right? It might come in 23, it might come in 24, it might come in 25, it might come in 26. there’s going to be a bear market at some point, right?

Jimmy: I think our friend DJ Van Kuren is set in believing that it’s coming in. Oh gosh, I can’t remember if he said 26 or 28, but he thinks it’s still a few years off. But I don’t know, we got PIMCO, Bank of America, Vanguard, JP Morgan Chase, some big names here thinking we’re going to hit a downturn probably in late 23 or sometime in 2024. But Andy, I think you’re right. I think your point of view is right. If you have a long term perspective. Does it really matter that much? Honestly, like, do we worry too much about the day to day or month to month movement of the stock markets?

And maybe we should just keep our eye on the horizon way out there in the long term. You know, as you mentioned, you’re thinking about making a private investment in oil and gas deal. And you know, you just don’t seem to be you don’t seem to be considering well, what’s going to happen with the with the interest rates and I don’t think that’s a calculation of yours at all. What’s going to happen in the near term? You’re you’re kind of looking long term, right?

Andy: Yeah, absolutely. I will say one thing that I think investors can pick up from Pimco is Pimco’s talking about having a little dry powder ready, right? So if any deals present themselves, and I’m all about that. I think that’s the best way to play a recession, to be honest with you, is to pick up assets with value-based pricing. That’s oftentimes, it’s fine when assets go on sale, so that’s the time to be greedy. when others are fearful. So I mean, to be honest with you, I think they do have a very healthy attitude about it, which is they’re not really battening down the hatches, they’re just having a little bit of extra cash in their institutional portfolio, right? They’re ready to go on a shopping spree. So it’s always weird when you kind of interpret these things, it’s more, you know, you could also interpret what they’re saying as, we’re ready to go on a shopping spree. We want prices to be a little cheaper first though. Will you please go on sale, Mr. Market?

Jimmy: Yeah, they hate the bull market, right? Everybody hates this bull market.

Andy: Exactly.

Jimmy: Because everybody’s got the cash on the sideline and they’re ready to time the market. Andy, you just suggested our listeners try to time the market. I think I don’t mean to put words in your mouth and just being a little tongue cheek. But that’s okay. I mean, isn’t that what holding dry powder is? It’s like, hey, I don’t want to I could put this into stocks or into bonds or into real estate, but boy, maybe I just want to sit in cash a little while. Isn’t it kind of risky to do that though, Andy that to hold on to dry powder when inflation is 4% plus

Andy: Yes, it is if you go whole hog, right? So whenever we talk about dry powder, whenever institutions talk about dry powder, whenever, you know, Warren Buffett or someone like that talks about dry powder, they’re talking about it, the margins, right? So they may. So like an institutional manager, they may have, you know, making up a number, uh, 45% of their overall assets is their, you know, target waiting for bonds.

Instead of 45%, they’re at 49%. So an extra four percentage points. That represents the dry powder. So we’re talking about tactical allocation differences. And that’s a very important point to make to retail investing. Because we all know that retail investor, I don’t want to drop any names of our shared personal friends, Jimmy, but who will announce to us, oh, I’m all cash. I heard the markets. The market’s about to crash. I’ve gone to all cash and I would not recommend that by any means. So yeah, you’re right. It is trying to time the market, but when you have an urge to do that, make a little tactical change, right? Don’t go whole hog.

Jimmy: I like that. I think that’s great advice, Andy. Well, I think we might be ready to move on to story number three today. Andy, this headline comes from Barron’s. The headline is bargains abound in commercial real estate. Where to find income and growth. This this is a big beefy article on the real estate market, but primarily office REITs. And the big question on everyone’s mind, and I’m going to ask you in a moment here, Andy, is office dead. So to start the article started by, by citing Orion Office, poor Orion Office had just about as bad a timing as you could possibly have. They went public in late 2021 and Orion Office REIT is down 74% since going public just less than three years ago.

The great debate in real estate, according to this Barron’s article, is whether the vacant office buildings in many cities will ever refill. Office vacancy has reached nearly 25% in cities like San Francisco and Chicago. Office real estate stocks are down 50% from pre COVID highs while the REIT sector has lost 9.5% in the past year, compared to the S&P 500 is up 14.5% in that same time period. So office rates, they’re troubled, but the other side of the coin is boy, they look pretty cheap right now. They’re pretty deeply discounted.

Some sectors, by the way, are thriving over the last short while here. Warehouse, logistics properties, data centers, apartment owners, multifamily, enjoying some healthy rental demand as home buyers stay sidelined by huge mortgage increases. We’re looking at 6.5% mortgages. It’s a far cry from. where we were under 3% just a year or so ago. Average monthly rent payments have doubled to almost $3,000 since early 2022. That’s according to Apollo Group Chief Economist Torsten Slok. The sell-off, according to the article, has delivered cheaper valuations and higher dividend yields. And REITs, Andy, as you know, which must pay out almost all taxable profits as dividends are yielding an average of 4.1%.

That looks pretty good now, right? Roughly… double that of the S&P 500. So after a large correction, REITs also look cheaper on measures of value, such as cap rate. Cap rates are now nearly 7% up from five and a half before the pandemic. That’s a pretty healthy cap rate, Andy, if you’re an investor looking to get in, that those numbers are according to real estate analytics firm, Green Street Advisors. Okay, so there’s a lot to unpack from this article. We’ll have a link to it in the show notes. I would recommend you guys read this one, Andy, but first. Andy, I’m going to pose you the simple question. Is office truly dead or has its demise been greatly exaggerated? What are your thoughts there?

Andy: Offices aren’t dead, but there is so much supply relative to demand from an investment standpoint. I might say it’s in a coma. It’s hibernating. I wouldn’t say it’s dead, but you mentioned that it might look cheap by a lot of metrics, like a 50% drawdown, but relative to pricing power, relative to future rent growth, relative to the vacancy rate in office. I don’t really know that it is very cheap. You know, if owning office real estate is a claim on that future cash flows, there’s just too much of it in all these major cities, you know, in Chicago, there’s too much office space relative to the amount of demand for it in the foreseeable future.

Jimmy: And the problem is, by the way, I mean, oftentimes, you look around, you see the fact that boy, there’s kind of this, we’re short supplied in affordable housing in this country, we’ve got all this vacant office space, why don’t we just transform these offices into living quarters? And I actually watched a video was posted to Wall Street Journal over the weekend, I watched it yesterday or the day before, Andy. And the estimate I think out of that video was it costs anywhere between 300 to $500 per square foot to convert an office. building into residential. I mean, that’s, that’s pretty, uh, pretty costly. By the way, the bigger problem oftentimes is the zoning issues, right? I mean, this

Andy: Right.

Jimmy: neighborhood zoned for commercial zone for office. We don’t want people living here. I mean, that’s been a huge blocker as well. So what do you do with all this dead office spaces? This is a shame really, but I don’t know, Andy, it looks to me like, I certainly wouldn’t want to be holding a lot of a big portfolio of office buildings right now. You know, you could probably buy whole buildings in San Francisco for you know, pennies on the dollar, right?

But what are you going to do with it once you have it? And I don’t have a lot of confidence in workers returning to the office, like we had pre pandemic, I would have told you also Andy, in probably mid to late 2020, I would have said, this thing’s gonna blow over real fast. everybody’s going to be back into the office, you know, within the next six to 12 months.

It’s not a big deal. I’m shocked actually at how resistant workers have been to return to office, despite the pushes by a lot of employers to get employees back to the office. It just, they, they just haven’t returned and some cities have returned better than others. The sunbelt, some suburban areas are returned to the office better than areas like San Francisco and Chicago site. And this article, um, Washington DC, by the way, has been pretty bad about getting back to the office with all the the government contractors and government employees haven’t been called back in. I don’t know. I don’t like office personally. I wouldn’t want to be an investor in office real estate right now, but where in your mind is value in real estate?

As we sit here in the middle of 2023, Andy, if it’s not office, you know, what, what should investors look to bolster their real estate portfolio with? If, if office as cheap as it is, maybe it’s still a little bit too expensive.

Andy: Well, I would say putting office aside, publicly traded REITs are still trading at a nice little discount, right? So I’m normally more of a private investment guy when it comes to real estate, but I think if you’re investing in real estate right now, you should at least give a look to publicly traded REITs. Even if you’re a family office, ultra high net worth investor, because of that discount, I think they’re worth a look. To be blunt with you, Jimmy, I think it’s hard to find value in real estate right now.

I’m not saying it’s impossible, but I think it is hard. You know, I certainly at a seven cap, it’s a lot more attractive to invest in real estate versus at a five and a half cap. Um, but assets still seem, I don’t want to say richly priced, maybe let’s say fully priced, you know, with, with data centers, with industrials, with multifamily, there are definitely pockets of value. You know, if, you know, you know, where to look, if you, you know, have a thesis, um, if you have access to capital potentially, you know, debt financing, there are still attractive deals. Um, but you know, I don’t know that I’m chomping at the bit to put a ton of money into real estate right now. I can be perfectly frank with you, Jimmy.

Jimmy: Yeah, no, I think I’m with you there, Andy. I’ve got a little bit of money in real estate, probably about 10% of my portfolio or so is in real estate thereabouts. But and I’m not looking to add any more anytime soon because I’m with you and I think it is fully priced, I would say like long term. By the way, I’ll say this, if you’re feeling risky, you got a little bit of dry powder, maybe you don’t like what’s going on with the stock market or the bond market, you think there’s a downturn? Maybe take a gamble on office. Who knows if it does come back, I think you’re sitting real pretty but Like I said, I’m rather bearish on office and I think everything else is priced in and some of these other sectors I really like multifamily as a sector in general in the long term, but I think those prices are that values fully priced in and same with data centers warehousing Logistics, I love those asset classes, but you know, I think you would have been better off investing in those maybe five or ten years ago I think at this point, maybe it’s more or less fully baked in but still not a bad long-term investment, but I wouldn’t say there’s huge value here or there.

Andy, we’re running out of time here, but before we go, let’s, uh, let’s turn our attention to everyone’s favorite segment on The WealthChannel Podcast. That’s right. It’s this week’s edition of the Bull Of The Week. Andy, we had some real good ones last week. I was on Otter Pops and you were on the “One Ring” card, which was found by the way, not by us, unfortunately, but someone found the “One Ring” card. But Andy, what’s your Bull Of The Week this week?

Andy: I’m going to give you a Bull Of The Decade, Jimmy. So this..

Jimmy: Okay, go for it.

Andy: …isn’t just of the week. This is for the next decade. It’s oil, right? We talked about, I’m looking into making a private energy investment, right? Doing some due diligence on it this week. And the macro story is really what I’m interested in. So aside from the specific investment, it’s always very important to do your due diligence, especially with private investments and especially with private energy investments.

But we were just talking about real estate, right? And how it still seems to be fully priced. Because when you’re looking at a real estate deal, especially a big deal, you’re competing with institutional investors who have a ton of capital to deploy, and asset managers who have a ton of capital to deploy, and it’s gotta go somewhere, right? And so a lot of times with these huge assets in the 10, 20, 30, $50 million range. institutional buyers will snap them up and it almost doesn’t matter at what price, right? They need to deploy capital.

Well, those same institutional investors increasingly are not investing in traditional energy because of ESG mandates. They’re not investing in oil. They’re not investing in natural gas. And so what that has created, in my opinion, is mispricing because we were just talking about pricing and real estate. And to me, Not saying it’s overpriced, but in a lot of cases, it seems to be fully priced. We have this whole area of real estate and operating businesses, traditional energy, oil and gas, where a lot of institutional investors and corporations are not investing, not because the numbers don’t make sense, not because they’re underwriting deals and they think assets are overpriced, but because of these ESG mandates.

And so really all that’s left is private capital. And when institutional capital leaves a void, that’s a really big void for private capital to fill up. And so we’ve now been under-invested. Even if you’re a big believer in alternative energy, it’s going to take time. And it’s going to take hydrocarbons, traditional energy, to bridge us to alternative energy. It’s just been under-invested. It’s been under-invested for years now.

I think it’ll continue to be under-invested. Now price of oil can be very volatile, right? So I’m not. I’m not saying that oil is going to be $100 a barrel next year or anything like that, but I do think it’s a very good place for private capital right now. I may reuse this bowl of the week every four episodes for the next decade because I think it’s going to be true. I think it’s going to remain true.

Jimmy: Yeah, feel free to. I think that’s a good reminder. We are headed toward a new green economy, probably, but boy, we might be 50 years off or 100 years off, I think we’re going to need fossil fuels for a long time to come before we get there. Because I mean, not only are we not ready in this country, but by the way, China exists, India exists, I mean, that’s half the world’s population in those two areas of the country, just about, and they want the same standard of living as we do. And we don’t have enough green energy to go around for us, let alone for them.

So I’m extremely bullish on oil as well, Andy. I think it’s a good long-term play as well. And like you, I can’t predict the price of oil a week from now or a year from now. It’s very volatile, but it’s really interesting. I hadn’t considered that vacuum that institutional capital has left. You’re saying they’re under-invested. There’s a pricing mismatch. there’s some good prices to be had for private investors. Oh, I love that Bull Of The Week.

Okay, mine’s a little bit less serious. It’s food based again. I had Otter Pops last week. I’m gonna go to the grocery store tonight, Andy, guess what I’m picking up? That’s right. I’m picking up some Ballpark franks. I’m firing up the grill for Fourth of July. Just want to wish all of our listeners a happy Independence Day. Happy Fourth of July. We love hot dogs over here in the Atkinson household. So can’t wait to celebrate and get the grill fired up. Can’t go wrong with my bull pick, Andy. I don’t know, hot dogs, a lot less volatile. I like hot dogs against oil there.

Andy: Chicago style, Jimmy. You got you got to get the pickle and the sport peppers and all that good stuff.

Jimmy: Yeah, we got the sport peppers already. We’ll get some more sport peppers.

Andy: Love it.

Jimmy: And absolutely no ketchup on any of the hot dogs. We’re going to do them Chicago style. That’s right, Andy. Well, hey, Andy, this was fun. We’re out of time for today. What do you say we do this again next week?

Andy: Sounds great and I want to wish all our listeners a happy 4th of July awesome holiday. Get some time with your family, relax, celebrate our independence.

Jimmy: and go see some fireworks, right? So anyways, thanks for listening to today’s episode of The WealthChannel Podcast, the show where we explore the world of wealth, money, and finance. As a reminder, you can find us online at slash podcast. The WealthChannel Podcast is available on YouTube, Apple, Spotify, and all other podcast listening platforms. Just hit that subscribe button so you get our new episodes every Tuesday morning, and we’ll see you next week.

Andy Hagans
Andy Hagans

Andy is co-founder and co-CEO at WealthChannel.