So today's video is Stay Alive. Tell 25. We're going to talk about why the Fed
is between a rock and a hard place. And of course, the moves
you must make in the next six months if you want to stay alive. 225 For this video, we're going to focus
on three main areas the Fed's next move, inflation and employment
all have to do with the Fed's next move. As you look at this slide,
you can see that the Fed has raised rates ten times
and the inflation, when you pull out housing has not been that great,
as evidenced by the Fed minutes from May. And they're very concerned
about low unemployment, which is driving wage growth,
which is also inflationary. So one of the things you need to pay
attention to is the Fed's bond futures, which is by the Chicago
Mercantile Exchange. And what this does is it
ranks the probability that the Fed will raise rates for the next two meetings
in June and July. Now, everyone is talking about the Fed's
going to cut rates, but I can guarantee you
they're not going to go from aggressively raising rates to rate cuts. If they do anything,
they're not going to raise rates at all or they're going to raise rates
a quarter point. This is a very good watch tool. If you own real estate
or you're looking to invest in the future, because this is a pretty good predictor
of what the Fed's going to do in the next two meetings. What you should not bank on is a Fed rate
cut this summer. This next slide is in September of 2023. And you can see
the probability is almost 67% that the Fed is going to continue
to raise their rates during that time. So why is this important? Because three rate increases are going
to severely affect real estate prices. They're going to affect
whether or not people can buy houses and they're going to affect
the rental market. All three things are going to be affected. The reason why the Fed wants to do
this is because housing is a big part of the CPI and they're
trying to actually cool it down. For those of you who do not believe me,
this is James Bullard, the Federal Reserve Bank
president from St Louis. I think we're going to have
to grind higher with the policy rate in order to put enough downward
pressure on inflation and to return inflation
to a target in a timely manner. And we all know that the Fed's target
is 2%. I'm thinking two more moves this year. Exactly where those would be this year,
I don't know. But I've often advocated sooner
rather than later. Inflation is expected to continue to be
a problem for the Fed, as you can see from this new survey by the National
Association of Business Economics. What I really want you to pay attention
to is the very last sentence here, because this is what I'm seeing across the board
by most of America's top economists. Just 2% of NABE forecasters
surveyed said they believe inflation will have slowed to 2%
by the second half of 2023, while 59% majority
do not believe that inflation will decline to the Fed's target level
until 2025 or later. What this is saying, folks,
is that inflation continues to be sticky. Even when you take out
housing is still is very high, much higher than the Fed wants and therefore
it's going to be higher longer. And that's why we say stay alive to 25. So this next chart is a very interesting one
and it measures inflation and wage growth. What I want you to pay
attention to is the blue line. And as you could see, there's
been some pretty aggressive wage growth from just a year ago. This is definitely on the Fed's radar
because as unemployment is really low, wages continue to rise, which are inflationary,
which contributes to the CPI. Unfortunately, the downside of
this is higher unemployment, which is not necessarily
good for the economy either. So as you can see, as of March,
which is the latest data, there were 1.6 job openings for every unemployed person well above the 1 to 1.2% range. That is consistent with the jobs market. That is not generating too much inflation. So you can see
we're well above the markers that the Fed wants right now
when it comes to employment. So let's forget about housing for a moment
and just focus on this. This is an inflationary problem,
which is one more reason why the Fed is going to continue
to raise rates for 2023. So what can we expect in staying
alive to 25 and what can we do about it? The first three things are you can expect
that more interest rate increases and no cuts in 2023 are going to happen. Okay. Inflation remains higher than the Fed
target through 2024 after ten rate increases, it's only gone down about 5%
and the Fed still has another 3% to go. Third, unemployment will increase to curb
inflationary wage growth, but the result of that
will be more people unemployed, which is not necessarily good,
which is going to lead us into a recession
on the second half of 2023. What are the things that I'm doing here
at NC Companies right now? The first thing is cash is king. The second thing is to refinance
to a fixed rate that has any potential future
increases in the future. But also now you're heads to a position. If rates go down in the future,
you can also refinance to a lower rate at that time. The third thing is to focus on
improving operations. We're seeing all kinds of things go up. Labor has gone up, insurance has gone
up, property taxes have gone up, utilities have gone up, marketing costs
and supply chain issues of all driven expenses much higher on some properties
that we've owned for some period of time, focusing on improved operations
and hunkering down and really dealing with each project
on a line item by line item basis is going to get you
in a much better position for when you are in an actual refinance
or potential sale opportunity. So these are the three moves
you're going to need to make the heads the rest of 2023 and through 2024
if you're going to stay alive. The 25.
