Every month we recap the top investment stories and world events that affect us at BAI Capital and shape our money-making strategies.
Sky-high gas prices, supply chain disruptions, stock market roller coaster rides, adjustments to inflation, emerging property markets, and ongoing effects from the war in Ukraine…
These are the top stories from May 2022.
War in Ukraine
The war in Ukraine, now in its fourth month, has caused many of us to challenge key beliefs previously taken for granted. Europe, it turns out, isn’t some special region of the world immune to the depravities and brutalities of armed conflict. The European Union, an organization often referred to as a slow-moving, bureaucratic machine, can come together with resolute action when the circumstances call for it. And Russia’s Vladimir Putin, depicted in the past as a strategic genius with an uncanny ability to exploit his adversaries’ failings, is in actuality a bad gambler who has dug his country into a massive geopolitical hole.
Yet one widespread belief continues to prevail and may have gotten stronger since Russian forces began pummeling Ukrainian cities on Feb. 24: The United Nations, the world’s answer to combating the threat of war, is ineffectual at best and irrelevant at worst.
The U.S. stock market closed out May mostly unchanged from where it began, a feat made possible only due to a strong month-end surge.
As we roll into June, the major U.S. stock indexes have all flirted with or succumbed to bear markets. A bear market is generally considered to occur when an index or an asset’s price has declined more than 20% from a recent high.
Whether or not the S&P 500 is in a bear market is mostly a matter of semantics: On a closing basis, this benchmark is down nearly 19% from an all-time high in early January—but when intraday prices are considered, the index slumped almost 21%.
Meanwhile, the Dow Jones Industrial Average (DJIA) snapped an eight-week losing stretch, its longest downdraft in nearly a century.
The question now is whether the late May rally signals the worst of the selloff is over. Inflation could be plateauing, and the focus of market worries appears to be shifting to economic growth, particularly as the Federal Reserve is committed to keeping raising interest rates.
As a result, investors aren’t likely to get a reprieve from volatility anytime soon.
“Market volatility is likely to continue throughout much of this year because of the high level of uncertainty,” says Sameer Samana, a senior global market strategist at Wells Fargo Investment Institute. “The number of issues causing inflation will increase, and we haven’t even started to focus on midterm elections yet.”
After the pandemic hit U.S. shores and everything shut down, Americans went on a buying spree and ordered online as never before. This had a significant impact on the global supply chain, and imports increased by 20% in 2021.
Severe delays at ports and terminals have become a global problem, and they continue to be bad news for supply chains everywhere. Some of the busiest ports like Los Angeles, New Jersey, and Savannah have experienced massive overcrowding.
As containers continue to pile up on docks and ships idle offshore for long periods, the impact of the pandemic on the global supply chain has put the industrial real estate sector at the center of a critical question: How can we remedy supply chain issues?
The answer lies in increased warehouse capacity. In my over ten years in the industry, and from my vantage point as the president of a vertically integrated real estate development and investment firm, I’m seeing the demand for industrial space rise more than ever before. Major new developments will be required to meet this robust need.
Chaos at ports, warehouses, and retailers will likely persist throughout 2022—and perhaps even longer. Combatting this dilemma will require investment, technology, and a refashioning of incentives across global businesses.
Manufacturers worldwide are under political and competitive pressures to increase local production, drive employment in their home countries, reduce dependence on risky resources and rethink lean manufacturing strategies.
CBRE data reveals that warehouse vacancy is at a record low of 3.6%. Even with dwindling availabilities, there is a projected increase in demand for industrial real estate as supply chain diversification, reshoring manufacturing, and the need to hold more inventory rises.
“Prices later this week could be closer to $5 per gallon than $4, as demand continues to edge higher and inventories of both gasoline and diesel continue to decline, temperatures warm and motorists get back outside and we near the Memorial Day weekend, the start of the summer driving season.”
— Patrick De Haan, GasBuddy’s head of petroleum analysis, told USA Today.
“The futures market is predicting that oil prices will decline by an amount that would translate to about 50 cents a gallon at the pump by the end of the year. It’s a completely believable prediction, but not certain by any means.”
— Severin Borenstein, an energy economist at UC Berkeley’s Haas School of Business, told SFGate.
It looks like gas prices are going to continue weighing on consumers throughout the rest of 2022. Add in inflation and rising interest rates, and it looks like this will be a tough year for the average joe.
Down payment is a less concern when compared to interest rates and prices.
Down payment is another factor that affects the payment shares. In May, the median down payment was $45,000, making up 13.3% of the sales price. A larger down payment usually means smaller monthly payments, and thus, lower shares. Keeping the mortgage rate, home price, and income at the May level, down payments would have to fall to $34,123 (a down payment rate of 10.1%) to hit the 2018 peak, but even decreasing down payment to 0 doesn’t hit the 2008 peak. However, it is unlikely for the down payments to drop to such a low level in a short time, given continuously increasing sales prices and an upswing trend in the down payment rate for recent months presented.
To get a better idea of the growing housing demand in the state, consider Miami, Tampa, and Orlando. According to Mashvisor, the three metro areas recorded average monthly rental prices of $3,477, $2,462, and $1,906, respectively, for a three-bedroom home. One of the said cities would probably be the best place to buy a rental property in Florida if you’re considering going with a traditional long-term rental investment strategy.
We like to say that America has something for everyone.
As immigrants to the USA, we understand deeply why our country can provide both a better way of life, as well as opportunities for foreigners to expand their portfolio in turbulent times.
In our experience, international investors look for US opportunities:
to provide stability to their holdings
to gain returns in US dollars
to expand their network and businesses
BAI Capital is an international investment firm based in Florida USA. Our professional services include opportunities in fixed income property development funds, purchase of prime location Florida and US properties, and for our foreign clients: immigration via investment: the EB-5 Visa Program.
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