“We Really Have To Get Inflation Down”

Yesterday, I reported on the long-awaited Jerome Powell testimony after the Fed chair faced Day 1 of Congressional questioning.

That interrogation has now officially concluded Day 2. And so I think it’s safe to say the Fed plans to increase interest rates until inflation finds a target reduction of 2%.

Come hell or highwater.

Republican Representative Trey Hollingsworth expressed concern that this commitment could soon make things way more complicated. And he questioned how these rate policies will shift if economic growth stalls and joblessness rises.

Powell responded with:

“In that hypothetical situation, that would be a setting in which inflation could be expected to come down. I think we’d be reluctant to cut.”

That’s because:

“We can’t fail on this. We really have to get inflation down. We’re going to want to see evidence that it really is coming down before we declare ‘mission accomplished.”

Leading Democrats also expressed concern over employment, housing, and equity. House Financial Services Committee Chairman Maxine Waters, for instance, said:

“While it is important for the Fed to fight inflation, I would caution against any approach that ignores the Fed’s maximum employment mandate and results in a recession with millions of people losing their homes and jobs.”

And Representative Alexandria Ocasio-Cortez urged Powell to endorse other approaches such as stiffer antitrust regulation or price controls.

Mr. Powell objected to that last suggestion especially. “There’s been a long history of price controls,” he said. “And it has not been a successful one.”

That’s probably true. But here’s another truth, which was I also stated yesterday…

The Fed’s chosen method of inflation-fighting hasn’t gone well either, historically speaking.

Not that U.S. markets cared. The Dow continued its rally, rising over 200 points. The S&P gained about a percent. And the Nasdaq followed suit, rising about 206 points.

Moreover, they’re all up significantly today too as I write this… further proof that we don’t want to have a short-term trader mindset as investors.

Not unless we want to go insane trying to figure out what makes what happen when day to day.

More Non-REIT News to Know About 

Not to state the absolutely obvious, but Netflix (NFLX) has not had a great year so far.

First there was its Q1 admission that it lost 200,000 subscribers, its first net drop in a decade. And it’s expecting many more in Q2. To deal with that disfavor, it laid off 150 positions about a month ago, followed by another 300 this week.

As Netflix announced in April:

“Our revenue growth has slowed considerably.  Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”

That’s one way to look at it, I guess.

Regardless, to combat these headwinds, the company is now courting potential partners to create ad revenue in the form of commercials. The advertising industry has been in a frenzy over this prospect for clear-cut reasons.

A potential ad-supported version of Netflix could be an incredible source of exposure for many markets.

Asked about who the company will partner with for this ad platform, Co-CEO Ted Sarandos responded, “We’re talking to all of them right now.”

“We want a pretty easy entry to the market – which, again, we will build on and iterate in,” he added. “What we do at first will not be representative of what the product will be ultimately. I want our product to be better than TV.”

How will consumers react to commercial breaks when they’ve been essentially paying to avoid them all these years? The big draw of streaming services has always been uninterrupted entertainment, so this could go badly.

More so than it already has.

The World According to REITs 

As recession fears rock the broader economy, many market analysts are reeling in their price targets across the board. And the real estate investment trust (REIT) world is hardly exempt from that anxiety.

This sector is known to be a resilient asset class and a great hedge against inflation. Yet JPMorgan (JPM) recently slashed its pricing targets on four REITs based on recent market movements related to the Real Estate Select Sector SPDR Fund (XLRE).

Those would be:

  • Extra Space Storage (EXR) from $224 to $193
  • Brixor Property Group (BRX) from $27 to $25
  • Welltower (WELL) from $94 to $89
  • Medical Properties Trust (MPW) from $24 to $18.

Even so, the first three strangely received upgrades from “neutral” to “overweight.” (MPW was downgraded from “overweight” to “neutral.”)

These are truly strange times, but my confidence in the REIT market remains rock solid. In terms of diversification, foundations, and strategy, there’s still nothing like a strong REIT to bolster one’s portfolio.

Big banks are always going to do what big banks do. But as long as we rely on our strategy of buying up powerful companies at attractive price points in a diversified portfolio…

We REIT holders should always come out ahead.

Brad Thomas is the Editor of the Forbes Real Estate Investor.

Disclaimer: This article is intended to provide information to interested parties. ...

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