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Deke's Investment Blog - May 15, 2014

Updated: Oct 13, 2020

Retailing. The internet has rewritten the way retail sales work and has changed the habits of consumers.Big Box retailers, such as JC Penny and Sears still anchor shopping malls, but these days are dwindling. Pennys and Sears true value is now in their real estate portfolios, while the future of operational prospects from store retail sales has limitations. Investors in commercial properties may consider this, including REITs, like Simon Properties and CBL & Associates.

It is a concern that prices are rising faster than incomes. This can’t continue indefinitely.

Housing revival. Since 2000 the percentage increase in young working adults has run faster than the increase in housing starts. This has led to increased demand for housing. This is likely to have secondary effects, such as higher home prices, higher rents and lower vacancies. The national home ownership rate of 65% in 2013 which is a 19 year low. Higher home prices mean less affordability and more households may become renters. There are presently good market conditions for the development and ownership of apartment properties.

Rents are rising sharply as many people rent or lease rather than buy, either by necessity or choice. The trend is forecast to continue.

Investment fundamentals for stocks. Concentrate on companies with a predictable business, strong balance sheet and solid management that can produce double-digit profit growth, and yet with stock that sells at a discount. Hold stocks for years, avoid a bear market (ask us how to do this).

US Economic growth. Analysts project moderate steady GDP growth of 2.5% to 3.5% annually for many years to come. The economy over the next decade may resemble a slow-moving freight train. The US is on the verge of regaining its manufacturing prowess. There is abundant capital, cheap energy, access to natural resources, technology, skilled labor. Expansion of higher-margin manufacturing could be a multi-decade trend and is just now at its beginning. Economic fundamentals may serve as a tail wind for many years. America is back.

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