Have We Reached the Recession?
Another Day in REIT Paradise
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In the last two quarters, our economy has been defined by increased inflation, higher interest rates, soaring energy costs, and a housing market that’s become nearly unaffordable with severely limited inventory.
It’s no wonder then that consumers are feeling the sting while businesses suffer from excess inventory and declining profits. And it should be equally unsurprising that our gross domestic product dropped the whole first half of the year.
Q2 data from the Commerce Department confirmed yesterday that our GDP contracted for the second straight quarter – indicating that we have officially reached the definition of a legitimate recession.
The New York Times reports:
“A key measure of economic output fell for the second straight quarter, raising fears that the United States could be entering a recession – or perhaps that one had begun.
“Gross domestic product, adjusted for inflation, fell 0.2 percent in the second quarter, the equivalent of an 0.9 percent annual rate of decline, the Commerce Department said Thursday.
“The 0.2 percent decline followed a contraction of 0.4 percent in the first three months of the year – meaning that by one common but unofficial definition, the U.S. economy has entered a recession a mere two years after it emerged from the last one.”
As I’ve previously explained, the official authority on recessions in America is the National Bureau of Economic Research (NBER). And it defines a recession as a significant weakening in economic activity, spread throughout the economy for more than a couple of months.
Factors like employment, output, retail sales, and household income usually make up these broader criteria. So do human opinions, for better or for worse.
So far, the NBER has not officially sounded the sirens of recession. And maybe it won’t at all this year, as everyone was initially predicting back months ago.
Clearly then, whether or not we’re actually in a recession is debatable. What’s not so much is that we’re in one of the strangest economic climates in history.
Labor markets are tighter than ever and, as we’ve seen in the last couple of days, investor sentiment hasn’t yet soured. Moreover, economists surveyed by The Wall Street Journal expect to see a swift turnaround this quarter.
Since we have no choice to move forward and see what we can see, let’s do nothing less!
More Non-REIT News to Know About
Shell PLC (SHEL) is one of the world’s most well-known oil and gas companies. With service stations around the globe, road warriors the world over have come to depend on this “crude” corporation.
And as the price of gasoline has increased due to demand surges and supply shortages… this London-based petrol powerhouse is reporting record profits.
That makes for quite the difference from the pandemic. Oil companies took huge hits back then as daily commutes and weekend driving declined. In fact, Shell saw a $4.3 billion deterioration in profits because of the shutdowns.
But now drivers are returning to the road in droves. So Shell’s second-quarter yield was $16.7 billion, compared with $2.7 billion a year ago when performance was in recovery mode.
After announcing these profit increases, Shell’s shares shot up 1.8% in early morning trading yesterday.
Meanwhile, to quote The Wall Street Journal again:
“Exxon, the largest U.S. oil company, said Friday it’s second-quarter profit rose to $17.9 billion, its highest ever and nearly four times as much as the same period a year ago, citing rising oil and fuel production, higher energy prices, and cost cuts. Rival Chevron also posted a record profit Friday of $11.6 billion, up from $3.1 billion in the same period last year.”
At least they’ve got that going for them in the midst of rising global issues and increasing government accusations. Again, what an interesting time we live in.
The World According to REITs
A prominent retail real estate investment trusts – a mall REIT, to be exact – recently caught the attention of the Philadelphia 76ers. As such, it will now serve to house that three-time NBA championship team’s new arena.
Macerich (MAC) has been a Speculative Buy for me this year due to its sheer size and portfolio of retail assets in some of the nation’s most dense and diverse shopping districts. And apparently, it’s a buy for a few other people too, namely 76ers managing partners Josh Harris and David Blitzer.
They’ve formed a new development company, 76 Devcorp to develop the future home of the Philadelphia 76ers. And, as noted above, after carefully assessing several sites, they chose Macerich’s Fashion District in Philadelphia.
That makes sense given its proximity to Philadelphia public transit and Center City area. Tom O’Hern, the mall REIT’s CEO, adds.
“At Macerich, we are constantly enhancing our properties to bring greater value to our shareholders, retailers and communities. The decision to repurpose part of Fashion District Philadelphia to include the new 76ers arena is a natural evolution of the site and a unique and once-in-a-lifetime opportunity for our company. We are committed to working collaboratively with 76 Devcorp to bring to life the vision of this iconic development that will ensure Philadelphia’s vibrancy for generations to come.”
With 41 home games per year plus the plethora of concerts, conventions, and live events this coliseum will attract… this property is sure to be a real revenue engine and a great addition to the Macerich portfolio.
In which case, let’s go Sixers!
Author’s Note: If you do determine this stock is right for you, make sure to purchase it at a smart entry point. Even the best of companies can burn you badly if you buy in at inflated prices.
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