The Consumer Confidence “Trickle Down” Effect

Investors and Colleagues,

Last week we received another strong piece of evidence that the economic rebound is continuing. What’s that? You missed it? Well, I can hardly blame you considering the small amount of attention it received in the financial press…

While the entire world obsesses about the European debt situation – and speculates on how it will affect markets from Wall Street to Shanghai, many investors are missing opportunities because they are so worried about the well-publicized risks.

We will get to Europe in a minute, but first let’s talk about consumer confidence. Last week the consumer confidence index came in at 64.2. The actual number doesn’t really tell us much about the consumer unless you put it into context. The number came in well above the 60.9 reading from September, and was the highest recording in the last 5 months.

So what does this mean for us at Ashford Capital? Like most businesses, our level of success rests primarily on the long-term resiliency of the US consumer. Since the US consumer accounts for roughly 70% of our economy, purchase decisions are what truly drives our economic recovery.

This is an important time of year for consumer confidence. Many retail businesses make the majority of their profit in the fourth quarter of every year. The holiday season is when we truly get to see whether consumers are feeling confident enough to spend money – and how that spending will ultimately work its way through the system.

The early indications are in – and it looks like the holiday spending will come in well above previous expectations. Companies often make hiring decisions based on these confidence reports – and more hiring means stronger economic activity across the board.

Lower interest rates are making it easier for consumers to consider purchasing a house, and as I mentioned to you in my last letter, homebuilders are reporting increasing demand for new houses and inventory is moving.

Strong demand for residential housing is great news for current Ashford Capital investors. I’m excited about the activity that I’m seeing and our attractive properties are becoming more valuable as the environment improves.

So What’s All The Fuss About Europe?

While the environment here at home is showing strong evidence of a recovery, most investors are still extremely concerned about the events in Europe. You might think that I’m about to say that the events in Europe don’t really affect our business in Atlanta – but that’s actually not true…

In an increasingly global economy, uncertainty on the other side of the Atlantic can actually have an effect on our business in Metro Atlanta. But my perspective is a bit different than the reporters on Fox News or CNBC. Instead of immediately wondering what will happen when “the world comes to an end,” let’s connect the dots from Europe to Atlanta.

First of all, the major issue is whether countries like Greece, Italy or even France will eventually default on their debt. If they are unable to repay their obligations, who takes the loss?

The majority of this debt is held by European banks – although US banks have some exposure as well. So if Greece or Italy ends up in default, the major European banks are going to be in a world of hurt. Farther down the line, however, the US banks are in trouble too. That’s because there are plenty of credit lines and derivative agreements between US and European banks.

If US banks end up taking on losses because of a European default, does that affect our business? You Bet! Remember, the majority of our properties have been bought either from US banks that were selling distressed properties at an incredible discount – or from the FDIC after the banks have been declared insolvent.

If US banks take a hit from Europe, the natural reaction will be for them to raise cash from their distressed assets. This means selling MORE properties to us because we are some of the only buyers out there willing to put up capital for land. For many investors who missed the very best bargain prices from the “original” financial crisis, we may very well have “round two” when it comes to tremendous buying opportunities.

Carpe Diem – Now Is the Time

If you’ve been on the fence about whether to invest in residential real estate, or wait for a better opportunity, I’d love to chat with you. I promise I won’t twist your arm or push you towards a decision. I just want to make sure you understand the opportunities that this market offers.

There may never be a time quite like today when demand is improving and supply is still cheap and attractive. There’s something very special about an environment where you can buy cheap and sell dear – at the same time!

Would you give me a call this week so we can discuss these tremendous opportunities? I would love to help you profit from this unique market environment.

Wishing you every success,

Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners