A mixed economic outlook, fallout from the pipeline cyberattack, and chip shortages are all leaving investors uncertain about the future.
And for commercial real estate, the question continues to be whether to select floating or fixed rates, or simply ride out the uncertainty.
The answer depends on your outlook, says Thirty Capital advisor Jay Saunders. “If you’re planning on holding assets, it’s unarguable that long-term rates are attractive. But we see anecdotally a lot of folks going into floating-rate debt at the moment.”
Thirty Capital CEO Rob Finlay agrees, noting a degree of nearsightedness, based on a longer position. Rob says: “You can look at an absolute coupon . . . but a long-term debt actually provides a lot on a risk-adjusted return basis. To me, these are very good and strong opportunities.
The calculation volumes on Thirty Capital’s website have doubled in the last week, indicating people are definitely feeling things. Says Rob: “Right now, I don’t think you could go wrong. It’s either low floating rate or low fixed rate.”
Rob cautions that it may well be a different story after Q2. He anticipates that when Q2 figures arrive later in the year, businesses will be reporting peak earnings for 2021. But it could be downhill from there if inflation takes off and interest rates increase in response to increasing costs.
Analyst Jason Kelley believes that the Fed will have a lot to do on the tapering side before short-term rates start going up. “On the short side of the curve, we’re going to wait and see, and we think the market is probably a little overpriced.”
In the next few days, all eyes will be on figures from the Consumer Price Index (CPI) and the Producer Price Index (PPI) for an answer to what’s happening with inflation.
Analyst Bryan Kern says employment stats and worker shortages are capturing headlines at the moment. The employment report anticipated an additional one million hires in April, yet only 266,000 workers were hired.
In stark contrast, companies across the US are complaining about a shortage of workers. Yet there’s still an abundance of unemployed people. Observes Bryan: “I think many workers make more on unemployment benefits than they would by going back to work. There was an article in The [Wall Street] Journal this weekend, which said several states are going to tighten unemployment reporting requirements.”
In some states, access to federal pandemic unemployment payments will end all together soon.
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