It may be one of the most anticipated recessions of all time, but that doesn’t mean it won’t hurt.
Barclays Capital Inc. says 2023 will go down as one of the worst for the world economy in four decades. Ned Davis Research Inc. puts the odds of a severe global downturn at 65%. Fidelity International reckons a hard landing looks unavoidable.
To kickstart the new year, Bloomberg News has gathered more than 500 calls from Wall Street’s army of strategists to paint the investing landscape ahead. And upbeat forecasts are hard to find, threatening fresh pain for investors who’ve just endured the great crash of 2022.
As the Federal Reserve ramps up its most aggressive tightening campaign in decades, the consensus view is that a recession, albeit mild, will hit both sides of the Atlantic with a high bar for any dovish policy pivot, even if inflation has peaked.
Still, humility is the order of the day for prognosticators who largely failed to predict the 2022 cost-of-living crisis and double-digit market losses. This time around, the consensus could prove badly wrong once again, delivering a host of positive surprises. Goldman Sachs Group Inc., JPMorgan Chase & Co. and UBS Asset Management, for their part, see the economy defying the bearish consensus as price growth eases — signaling big gains for investors if they get the market right.
Expect an uneven year in trading. Deutsche Bank AG sees the S&P 500 Index rising to 4,500 in the first half, before falling 25% in the third quarter as a downturn bites — only to bounce back to 4,500 by end-2023 as investors front-run a recovery.
Perhaps the easy money will be made in bonds at long last. After the asset class delivered the biggest loss in the modern era last year, UBS Group AG expects US 10-year yields will drop to as low as 2.65% by the end of the year on juicy coupons and renewed haven demand.
Meanwhile the crypto bubble has burst. Investments houses are in no mood to talk up the industry, after spending the boom years hyping up the speculative mania as same kind of digital gold for tomorrow, while peddling virtual-currency products to clients in traditional finance. Now, crypto references have been all but extinguished in 2023 outlooks.
And remember Covid? For global macro strategists at least, it’s a distant memory. The pandemic is only a material consideration with respect to China’s high-risk effort to rapidly reopen its economy — the outcome of which could have profound consequences for the world’s investment and consumption cycle.
Two Trees Management has landed $305.3 million in construction financing for two residential towers that are part of the developer’s long-planned Domino Sugar Refinery redevelopment in Williamsburg, Brooklyn, according to property records filed Wednesday night.
Two Trees, under the entity 346 Kent, received a $189.4 million loan from JPMorgan Chase for the two-tower project at 346 Kent Avenue. The developer, under the name Domino Development Partners, also received a $118 million from JPMorgan for the project, which will scale 565 feet tall.
David Lombino, Two Trees’ managing director for external affairs, said 346 Kent will encompass 600 total apartments with some units designated as affordable housing. The two towers will rise 50 and 55 stories at the south end of the Domino site, next to Williamsburg Bridge. The buildings are slated for delivery in 2025.
Two Trees acquired the 11-acre former sugar refinery factory at 292-314 Kent Avenue in 2012 from the Community Preservation Corporation for $185 million with early plans for 2,220 apartments. The developer later expanded its proposal in concert with SHoP Architects to spend roughly $250 million to add 600,000 square feet of commercial space and increase the square footage of the project by 10 percent.
The overall development is expected to be completed in 2024. Two Trees has tapped CBRE to market the site’s 460,000 square feet of rentable office space.
Officials at JPMorgan did not immediately return a request for comment.
Andrew Coen can be reached at acoen@commercialobserver.com.
Despite rising interest rates—with the potential for more hikes in the coming months—commercial real estate has seen success in 2022. Although the forecast varies among asset classes, the overall industry outlook remains positive heading into the second half of the year.
Retail properties
Strip malls in densely populated residential areas are doing well. Grocery stores, salons, fast-casual restaurants and other retailers offering in-person services are critical to the strong performance. As retail evolves, walk-in MRIs, COVID-19 testing clinics, medical providers and other tenants outside traditional retail categories may fill more shopping centers. Class B and C malls continue to struggle. They may be prime candidates for adaptive reuse. Their locations and proximity to parking could be used for the development of market-rate and affordable housing. Many of these malls also have dock doors and clear heights compatible with industrial use, so they can be ideal for warehouses and fulfillment centers.
Interest rate hikes
While nowhere near their all-time high, interest rates have steadily increased. The 10-year Treasury yield is also up. Interest rate increases are on the agenda for this year’s remaining Federal Open Market Committee (FOMC) meetings. Factor in the potential for higher interest rates as you consider commercial real estate investments.
Multifamily properties
Multifamily housing remains strong. Given the rising prices and mortgage rates in the single-family housing market, people are renting for longer. “Multifamily vacancies now stand at 4.7 percent as of the first quarter of 2022, below the 4.8 percent vacancy level we recorded in 2019,” said Victor Calanog, Head of CRE Economics at Moody’s Analytics. “Performance metrics remain tight, with asking and effective rents posting near-record highs in the first quarter of 2022. The new record is 8.1 percent effective rent growth in the third quarter of 2021—more than three times the prior record of 2.4 percent set in the third quarter of 2001.”
Workforce housing could be an investment opportunity. There can be upfront costs to modernize dated apartment units. However, the demand for these units may outweigh those minimal costs. “Depending on how you measure it, we have a housing shortage of anywhere from 2 million to 5 million units at the national level,” Calanog said. “Add to that strong growth numbers for both single-family home prices and multifamily rents, and you have a situation where large parts of our workforce need not just more housing, but also more affordable housing.” The need for affordable housing still far outpaces supply. Adaptive reuse, modular construction and preservation are important tools in addressing the housing crisis. The biggest impact may come from public-private collaboration, such as big tech and healthcare employers working with local governments to develop workforce housing near workplaces.
Office properties
The war for talent includes new amenities. The labor shortage persists across industries. While the hybrid workplace is here to stay, on-site work can encourage collaboration and is necessary for many occupations. Companies are hoping to entice new workers with office amenities like outdoor space, daycare and catering. Although the best amenities vary from office to office, they’re critical to finding and keeping top talent. Organizations may rethink how they use offices. The previous standard was several hundred square feet per employee. Hybrid work reduces the number of people in the office, which may affect that calculation. Businesses should also consider the best use of the space. If employees are only in the office a few times a week, are cubicles, open offices or a different setup the best way for them to collaborate in-person?
Industrial properties
Industrial properties may expand their reach. Companies may opt to create single facilities for multiple business purposes, such as a shipment center with offices or a showroom. We may also see these locations add mothers’ rooms, gyms, complimentary snacks and other amenities typically reserved for offices. The industrial boom shows no sign of stopping. As e-commerce and demand for quick last-mile deliveries grow, so will industrial properties. “We’re expecting some slowdown in industrial deliveries,” Calanog said. “Still, if more goods continue to be ordered online and industries such as life sciences emerge, demand for industrial space will likely remain robust.”
What’s ahead for commercial real estate?
Multifamily and industrial properties have thrived in 2022. With healthy balance sheets, consumer demand could bolster retail, multifamily and industrial asset classes. Neighborhood retail in well-populated areas that offer in-person services has also done well. As the country navigates hybrid work, we’ll gain a clearer picture of how to best use office space. Keep an eye on interest rate hikes, supply chain issues and geopolitical events as well as ongoing relationships between public and private entities in affordable housing.
Al Brooks is Head of Commercial Real Estate and Commercial Banking at JPMorgan Chase
There was a lot of fanfare made recently over an investment note from JPMorgan Chase which seemed to elevate bitcoin over real estate and other traditional asset classes as the “alternative asset of choice.”
A May 25 investor note made the argument that bitcoin was around 28% undervalued and that the bank was targeting an upside price of around $38,000 per coin, in effect making an argument for bitcoin’s recent price weakness being overdone relative to real estate, private equity and private debt.
On the surface this seemed to be a big change from the one major, money center U.S. bank whose CEO, Jamie Dimon, refuses categorically to jump on board the bitcoin bandwagon.
If anything, Dimon’s antipathy to bitcoin rivals only that of European Central Bank (ECB) President Christine Lagarde, who continues to peddle the idea that bitcoin has no value because, of course, it lacks the backing of a central bank and/or government.
This is Dimon’s public beef with bitcoin as well. He’s been very clear about this: Bitcoin doesn’t matter because it has no official support or backing. Since JPMorgan is one of the shareholders of the New York Federal Reserve Bank, you really can’t blame him for “talking his book,” just like Lagarde or another famous bitcoin hater, Charlie Munger of Berkshire Hathaway.
So, what about this investor’s note then? Well, as always, the devil is in the details.
The first thing to remember is that this is a so-called “sell side” analyst’s note, meaning it is the opinion of analysts within JPMorgan of where investors should put their money preferentially under current market conditions. It has nothing to do with the opinion of the CEO of the company.
Anyone who thinks Dimon would be mucking around in the depths of his investment banking sell-side division to grind his personal ax against bitcoin simply doesn’t understand how a company like JPMorgan Chase works.
Even Dimon himself has said as much. In an interview in May 2021, he said the following:
“I’m not a bitcoin supporter,” Dimon said during The Wall Street Journal CEO Council summit on Tuesday. “I don’t care about bitcoin. I have no interest in it.”
“On the other hand, clients are interested, and I don’t tell clients what to do,” he said.
“Blockchain is real. We use it,” according to Dimon. “But people have to remember that a currency is supported by the taxing authority of a country, the rule of law, a central bank.”
There are a lot of ideas in these quotes from Dimon. He’s the CEO of one of the largest, most powerful and influential banks in the world and he maintains that business by being smart enough to give his customers what they want, even if he himself is not interested in that product and/or is working on products which are, tangentially, its competition.
His sell-side analysts aren’t paid to be his mouthpiece, they are paid to see things clearly and present an investment thesis to clients and get them to sign over some funds to make the bank a broker’s fee.
It’s nothing more complicated than that.
That said, however, if that was all there was to this story, I wouldn’t be writing this article. There is more to it than that. JPMorgan, along with the rest of Wall Street, is in a real pickle. For the past 14 years, for the most part, the Federal Reserve has kept interest rates near the zero-bound.
At zero-bound interest rates traditional bank revenue models collapse to zero as well. Net interest margin, or NIM, is supposed to be the core business of a bank. NIM is simply the difference between what the bank pays you for your deposits to loan them out to investors at a higher rate.
The bank charges X, you get 30% to 50% of X and the bank keeps the rest. That “rest” is NIM. And NIM is a dead letter office on the quarterly earnings report of most major banks in the era of coordinated central bank policy.
Instead, the banks have engaged in ever more esoteric investment banking and trading schemes to make money while looking on their traditional depositor customers as some albatross they have to deal with in order to keep the regulators at bay.
As such, then, bitcoin and other digital assets have become just another source of funds for banks to tap to sell another structured product to high-value investors, which is where they make the bulk of the money anymore.
Enter the sell-side talking up bitcoin at crucial moments in the market. Honestly, when that investor note was published and bitcoin was clinging desperately to technical support around $29,000 per coin, I’m hard pressed not to believe that was the signal to the market that JPMorgan itself had decided it had accumulated enough bitcoin to stuff into some line item on its balance sheet.
Bitcoin is big business now and with the shift in hashing power from China to the U.S. over the past couple of years, there is more interest than ever in finding ways to sell cryptocurrency-related products to investors, while Wall Street finds ways to accumulate on pullbacks while amping up the FUD whenever the price rallies.
Why do you think Dimon hates bitcoin? It’s not because it’s a challenge to his company’s business. It’s for the same reason that he and Munger hate gold. Munger can’t lobby some government official to create a one-way trade for him to “invest” in it and Dimon can’t structure a product around it to build a regularly-occurring income stream from it.
There is no business for them there. There is no profit selling you a fund once or twice that holds bitcoin in a cold wallet.
How can they come up with their “two and 20 income” streams on something people just want to buy and HODL for the end of times? This is why, from the very beginning, Dimon and people like him have only had eyes for Ethereum and DeFi, while decrying bitcoin as having no “there there.”
Of course, nothing could be further than the truth. Bitcoin, like gold and other assets that exist independently of the financial system — what Credit Suisse’s Zoltan Pozsar recently termed “outside money” — are the very things that have the capability of re-establishing financial discipline on the world.
But that puts at risk the very nature of the existing system, even though that system is creaking along on its last legs and both Munger and Dimon understand this better than anyone.
Bitcoin, and cryptocurrencies in general, are fighting an insurrectionist fight attempting to reverse the wealth extraction dynamic of the existing system. Remember, Dimon and the rest of the New York Boys have made their trillions on extracting rent (unearned wealth) from the world through the Cantillon effect of being close to the source of new money.
Dimon has no interest in giving any amount of breathing room to something that threatens that, but at the same time, he and JPMorgan are trapped by being major players trying to stay afloat as that system is being drained of its pool of real capital.
This is what best explains the mixed signals coming from his organization. The market is slowly, but surely, choosing “outside” assets to preserve wealth while JPMorgan and the rest of the New York Boys all make their money by manipulating the costs of “inside” assets to keep returns high enough to staunch the outflow.
In effect we are now in a race toward an uncertain future, one where there are major forces vying for market share during this breakdown of the old system and the establishment of a new one, or multiple new ones.
Men like Dimon and the World Economic Forum’s Klaus Schwab will fight tooth and claw to remain relevant players going forward. This is why JPMorgan on the one hand can and will recommend bitcoin to its family office and investment house clients, but on the other spend billions developing a payment layer to replace SWIFT.
In fact, I find the fight surrounding Ripple (XRP) to be far more interesting than whether or not Dimon and JPMorgan are finding ways to make money with bitcoin. Dimon is backing his product through ConsenSys, Schwab and the WEF are backing Ripple and, in my view, the U.S. Securities and Exchange Commission (SEC) lawsuit was a poison pill left behind by outgoing SEC Chair Jay Clayton for Gary Gensler while everyone works to slow down the real crypto-revolution, where none of these oligarchs and rent-seekers are needed anymore.
This is the real promise of bitcoin and JPMorgan’s high-net-worth investor clients are finally, for the first time in decades, truly becoming scared of where things are headed financially. Schwab and the WEF have laid out their plans for the future, a fully-tracked and cataloged life for all people living wholly within a digital identity that decides for you what your range of actions in the real world are allowed to be.
Too fat? No pizza. Wrong politics? No job. Haven’t dated a tranny? No healthcare. In that world there is precious little need for banks like JPMorgan or your local credit union. That is the threat that I know Dimon perceives is on the horizon. He wasn’t at this year’s Davos. But, other members of the New York Boys club were, like Larry Fink of Blackrock and Brian Moynihan of Bank of America, to name a couple.
JPMorgan is no friend to bitcoin, but Dimon is fully aware of the real threats to not only the current system, in which he’s a central player, but also to any and all potential escape routes desired by his best customers.
This is why I can see him happily allowing bitcoin to develop to undermine Schwab and the WEF while simultaneously working to undermine it in the long run with his own preferred solutions.
Personally, I think he’s doomed to fail as I think Schwab is as well. The way in which both of them appear to succeed in the short-term will be frustrating as hell for bitcoin enthusiasts to watch. But they are both fighting against a tide whose time is long overdue.
Never in the history of capital markets have commodity prices been this cheap relative to that of equities (like the S&P 500) or debt assets. Bitcoin, being the first derivative of energy to procure commodities in the real world where real wealth is built, is then, by extension, criminally undervalued as well.
Dimon, Schwab and their lieutenants at the Fed and the ECB can keep the flow of their overvalued dollars and euros high to reinforce their dominance but they also need to restrict their supply to keep inflation from eroding the political power from which their currencies, by their own admission, derive their market share.
That is the catch-22 that Dimon and JPMorgan find themselves in today. Friend or foe, bitcoin doesn’t care. It will just keep accreting value and building a network strong enough to allow us to ignore their grand dreams of global control.
This is a guest post by Tom Luongo. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.