Focused Investing Perspectives #33

Ducks in groups, soon to leave.

Elections, markets, economy, etc

Perspective This Week

I caught up with a couple posts this week by Scott Grannis. Some related comments follow.

De-Industrialization in Europe

It is a disappointment that peaks in US industrial production have been flat since 2008. But look at the recent trend in Europe:

Certainly the Russian war on Ukraine has had an impact. But the economic suicide of their bad energy choices is part of the story too. I see story after story that combined reflect the ongoing (and self-inflicted) de-industrialization of Germany.

Such observations underpin my skepticism about European companies. There are both direct economic impacts and whatever government responses follow. The latter, though not predictable in any detail, will be predictably irrational.

One can make some very pretty arguments for some European REITs and energy companies. Some of them may prove out. But to my mind the risk there for investors is not trivial.

Economic Liquidity

And then there is US economic liquidity. The Austrian economists have much right from a 30,000 foot view but reliably screw up on details.

They cheer every recession, because economic expansions produce malinvestment that needs to be liquidated. So they love seeing firms go bankrupt.

The thing is, lots of businesses quite sensibly depend on the routine availability of credit as part of their approach to capital. And if you create a liquidity crisis, making credit completely unavailable for some time, you push a lot of perfectly viable businesses into bankruptcy.

This impacts their owners and employees for no rational reason. And the Austrians cheer.

Well this time the Fed raised interest rates to disincentivize borrowing but without creating a liquidity crisis:

It turns out that lots of viable businesses can adapt to a period of higher interest rates without going bust. Business bankruptcies were at all-time lows in early 2022 but have come back up, as was surely needed. But there was no recession.

The Austrians should get their heads out of their [books] and spend some time in the real world of real people.

Recent News (Drawing my attention)

Forthcoming:

Working on Modiv (MDV), a tiny REIT focused on manufacturing properties, has been a tough challenge. These tiny REITs often report their financial details in non-standard ways.

Then there is groping with their major transformation. Still, my report should be out this coming week.

After that we have a major holiday weekend. I will follow my standard practice and sign off for a week, in this case from Wednesday afternoon until a week later.

I appreciate all the suggestions for next topics of investigation. No decision yet but a non-REIT is most likely.

Personal News:

There have been years when my lake is frozen by this date. But as you can see in the photo I’ve still got ducks. On the activity front, I’ve been able to walk normally on my knee for the first time since injuring it in a fall last June. Loving that.

Member News

Recent material this past week included the following.

Items that went to all members:

• An article on the diverse ways that REITs grow, and how these change over time.

• A Perspectives newsletter.

Items that went to paid members, often including a free preview of most of the article:

• Two trade alerts. Continuing to prepare for winter. It will come.

• Paid members have access to the Focused Investing chat.

The Google Sheets (for annual members):

• The main attraction on the Google sheet is full disclosure of my live, real-time portfolio. If you are an annual paid member and do not have access, please contact me.

• There are also a REIT assessment sheet and a Midstreams assessment sheet, each a tab.

Also:

• One can also post items of interest on the Focused Investing chat, which I do often. Check it out and post your own items, please. Comments and questions are always welcome.

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