“Only when the tide goes out do you discover who’s been swimming naked” Warren Buffett
The economic tide is going out! ‘Naked’ investors who have benefitted from calmer waters are now engulfed by fear. Equity, Bond and Property markets are shaking as a lack of confidence filters through from financial markets to individual consumers.
This quarter we look at the escalating storm in global markets as, for the first time since 1975, we enter a rate tightening cycle while the economy slides into recession. Base rates are increasing from unprecedentedly low levels, raising not only the physical cost of capital but challenging the decade long conditioning that ultra-low rates were here to stay.
We discuss the changing landscape in the real estate market as investors struggle to adapt to the new world. At the beginning of the quarter, we witnessed a significant decline in transaction volumes which quickly developed into a period of price discovery where investors reassessed their comfort with current valuations. Within the report, we challenge the modus operandi of real estate valuation. We argue the fundamentals of the asset class have changed and the standard risk premium previously required to compensate investors is now insufficient.
If you would like to discuss any elements further, please get in contact with Simon Cooke or Ben Kennedy.
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