What Will We Be Talking About in 2014?

By Brad Thomason, CPA

 

I’m not one for making specific predictions: history has shown a decided meanness to those who do so.  But I do think that we can make some general statements about things which are likely to be making the newsreel in 2014.  Based on both national press, as well as the conversations that we are having at our office with clients and fellow pros, here are some topics I expect you will see in the coming year:

 

Rental Real Estate – You probably know that the big boys have gone in heavy for rental property in the last few years.  It’s easy to speculate that the smart money may have already snapped up all the good stuff.  But I expect that we’ll continue to see opportunities in the space, for a couple of reasons.  First, the primary focus of the biggest players has been (predictably) on the biggest markets: places like Phoenix, Las Vegas, the central valley in California, and pretty much the whole peninsula of Florida.  These were the places that had the biggest problems in terms of quantity, and the ones which got the most press during the financial crisis.  Big discounts and high concentrations are prime indicators for a large investor to move in.  What they are sometimes less adept at is moving into smaller markets and not having the luxury of massive discounts to absorb mistakes and inefficiencies.  There remain smaller pockets of good candidate properties all over the country.  And many industry watchers are saying that new mortgage regs due out in January are going to make it even tougher to get conventional financing than it already is.  So don’t count rentals out yet.  We are actively working on a couple of projects with ties to rental assets, and everything we are seeing still points to the possibility of a lot of deals being available across the country; many of them with very solid yield prospects.

 

Interest Rates – Not many reasons to think that general rates go a whole lot higher any time soon.  Even with quantitative easing, per se, going away, Bernanke’s likely successor is of a similar mindset.  The new Fed is expected to look a lot like the current one.  Probably takes a lot to cause the Fed to do much to push rates higher, and with a tepid economy both here and in Europe, the risk of a hot market driving up rates seems a distant possibility.  That said, this time last year it seemed equally (more?) distant that my Auburn Tigers would be playing for the National Championship.  But let us say that higher rates would almost certainly have to come from something that no one is accounting for right now.  Low interest rates remain a news story because retirees and other investors who go with conventional allocations in things like CDs and Treasuries likely continue to go unrewarded for parking their capital in those places.  It is simply a fact of life that most folks will stick with convention, even if it isn’t working, rather than look elsewhere for something which will work.  The media, in turn, will give them stories that they can relate to.

 

The Stock Market – With the run-up this year, not much way to see how the market stays out of the news next year.  Whether we push higher into uncharted territory, or collapse back to previous levels, a lot of news is going to get thrown off in the process.  In fact, even if the market remains relatively flat, the media is still likely to focus on how different one year can be from the next.  Like always, it will be hard to know if the market is pulling the news, or the news pulling the market.  Ask 100 people where the market will be in another year and get 100 different answers, and journalists and talking heads historically fare no better than anyone else.  Better to watch the developments yourself and adjust accordingly, paying special attention to what happens on the chart around key support and resistance levels.  I have found over the years that there seems to be an inverse relationship between exposure to news and clarity of insight over what the market appears poised to do next.  Consume your journalism with care.

 

Peer-to-Peer Lending – Or “p2p” for short.  2014 is going to be the breakout year for this development in the financial industry.  This will essentially be a whole new kind of note/bond market where investors can make relatively small investments directly in the projects of entrepreneurs and asset originators, without all of the formality of full-on securities offerings from investment bankers.  You will also see it publicized as “crowd funding.”  New rules have gone into effect, which make it easier for those raising capital to advertise, and also to get investments from non-accredited investors.  The move started with the passage of the JOBS Act back in 2011, as a means to promote small businesses.  They have been working out the rules – which are still changing and developing on a near-weekly basis right now – ever since.  We’re involved in a couple of projects in this space too, and it is quickly going from a topic that only finance nerds are talking about, to something which is going to be in every newspaper and magazine you pick up next year.  The prospect of easier capital raising for issuers, and better rates for note buyers (probably in the 5% to 9% range, depending on the underlying project or asset pool) will be a very attention-getting combination.  It will almost certainly be a space with some spectacular blow-ups and unfortunately probably a scam or two thrown in for good measure.  As in all things financial, be careful.

 

That’s a good place to stop.  In just 2 short weeks we can start seeing how many of these expectations come to pass.  Until then, Happy Holidays to you and your family.  See you in 2014!

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