JR Snell Capital Management, LLC

There are definitely two categories of people when it comes to removing a Band-Aid… the slow, easy-does-it kind of style and the rip-and-cringe-but-get-it-over-with style. I count myself among the latter group. Although it hurts like hell, it’s over quickly and I can get on to other things.

And so it goes with the “creative destruction” reflected in foreclosures and the housing crisis. My argument is that if it’s going to happen anyway (there really is no avoiding it), let’s just suck it up and get it over with. Technically speaking, this would be the Fast Band-Aid Approach.

Government policy from the beginning of the crisis has been to try to avoid or delay the natural process that has to occur to put the crisis behind us: We have to move housing inventory from “weak hands” to “strong hands” as quickly as possible. After ten or fifteen years of government policies to encourage “weak hands” to invest in real estate, it’s going to take time to effect this evolution. It will take even longer than it otherwise would because our government designs and enacts policies every day to slow the process further.

In a bit of an “Atlas Shrugged” move, the politicos believe the process of creative destruction can be halted simply because they wish it so. But no matter how hard they wish, the process must run it’s course.

We could have done it the quick way or the slow way. Unfortunately, we’ve chosen the slow way.

ACTION ITEM: It can probably be a decent time to make some real estate investments if you can be comfortable holding it for a very long time. Although we’re seeing economic improvement which will probably help to hold up prices, it seems fairly balanced by continued slow dumping of homes on the market.

credit crisis, investing, investing strategies, Public policy, real estate

Our friends over at the Daily Capitalist have put together a concise article that explains what I believe will be a fundamentally lingering problem for years to come and is the centerpiece for my argument about why, we as investors should reset our expectations of investment returns going forward.

The unfortunate fact remains that credit for most of America is still tight, banks are still trying to repair their balance sheets, and the overlying problem is real estate, the detritus of the Fed’s reckless monetary policy. Credit expansion fueled by the Fed’s easy money policy of the early 2000′s drove private debt to fuel housing over-production, and drove commercial debt to fuel commercial real estate (CRE) over-production. It was the greatest such expansion of money and credit the world has ever seen and it went primarily into real estate. We are now facing the consequences of that expansion and boom: the bust.

You can read the article in its entirety here.

credit crisis, deflation, fed, real estate, treasury