2020 August Update - Head Winds
First off, July has been an amazing month with increased deal flow from multiple sources. We closed another loan with many more in the pipeline. Buyers/investors in the small balance commercial real estate arena have come out strong and according to many of the brokers in our network they are seeing more activity that will certainly carry into the months to come. In lock step we have had more interest from investors as well. The growth in capital allows us to participate in more loans allowing us to continue to diversify our investors holdings. This also allows us to further develop presence in the space so we see more quality deals as old and new clients recognize we will be there for them to help complete their transaction. I want to be sure to thank all of those that have helped introduce us to new clients and welcome the new investors that have joined us in July. We look forward to having you as partners in the Fund for a long time.
Second, the latest update on COVID. Worldwide we stand at over 14 million infections, with an average of 221,000 daily infections over the last week. Roughly 600,000 people have died. As can be seen in the Chart below the leaders in infections are the US, India, and Brazil. In the US, Florida, Arizona, Texas, and California are primary states pushing numbers higher.
Job recovery is very important to many people and to our portfolio risk. Unemployment has fallen significantly but getting back to pre-COVID levels will take some time. The first chart below shows an estimate from the Goldman Sachs research team on their forecast of unemployment. The second chart is a comparison of unemployment relative to other crisis events. Scary. If it took 30-months to recover from other recessions, Goldman Sachs might be on target with their prediction of 36 months, if not more. We are certainly not out of the woods on the risk of rent payments falling. What this means to us is we stick with our current more conservative underwriting policies to help mitigate this risk.
The government’s new bill to extend more aid will certainly help and is needed. However, this aid is just like most Western medicine, put a Band-Aid on it and take a pill for the pain. That really does not fix the root of the problem. You are alive and feel better which is great, but when does the pain start again? With the new stimulus package, total aid will be approximately 20% of GDP. Will this lead to a fiscal crisis? Of course, no one is sure if it will or when. Harry, we are still looking for that one-handed economist to give us a straight answer.
On a final note, and a good way to sum up what all the headwinds of jobs, fiscal cliffs, and future taxes means to us; David Kostin, the Chief U.S. Equity Strategist at Goldman Sachs, believes the Equity markets (S&P 500) will “generate 6% annualized return through 2030 with a possible low of 2% or a high of 11%, and that equities will outperform bonds. I state again investors must look to alternative platforms for yield and investment performance, that is why we are passionate about what we do at Kirkland Capital Group.
As always please stay healthy and safe. If there are any questions, please feel free to reach out. Look forward to another great month.
