27
Aug 2025
Real Estate Alone Isn’t Enough Anymore…
Do you remember how just a few years ago conventional wisdom said that real estate was “a no-brainer”? As America began to sense that we were going to have more inflationary issues in the next 20 years than we did in the preceding decades, investors began to think that perhaps there would be a role for real assets in their portfolios despite decades of underperformance. Conventional wisdom continued however that unlike gold, real estate was practical. It was reminiscent of Fed Chairman Bernanke’s commentary that no one ever really lost money in real estate, words that proceeded the worst real estate correction in almost a century.
Fast-forward to today and the entire real estate market is in suspended animation as regulators extend greater latitude to financial institutions in marking real estate to market so as to avoid needing to declare a swatch of our financial system insolvent. It appears that over $1 trillion in real estate developments are still underwater where the only real clearing mechanism will be a massive mark down to property owners.
This month we’re seeing further cracks in the story that real estate is the best real asset under all circumstances. The Wall Street Journal highlighted massive issues in Boston’s coveted financial district where vacancies continue at 2/3 of capacity and lawsuits are breaking out between government and property owners, ironically over fair value. While property owners have been loath to mark assets down appropriately because of the aforementioned solvency impact, these same property owners are simultaneously insisting government lower fair value in its estimations to reduce property taxes. And to those who said multifamily would be different and always in demand, we are also seeing changed dynamics as thousands of units are now trapped in insolvent structures. Compounding matters, governments such as those in New York are speaking of freezing rents to appeal to voters despite higher input costs, further pressuring the anticipated returns of real estate investors.
Why is gold such an attractive portfolio addition for real estate investors? Experienced real estate investors appreciate what gold offers that real estate will always struggle to replicate. Consider some of the differences:
Liquidity. In the best of markets, real estate can be slow to sell. In weak markets, real estate's lack of liquidity can be painful. In contrast, gold trades 23 hours a day, five days a week and is more liquid than the Dow Jones industrial average. Few investors are going to have trouble liquidating their metals position within moments.
Cost of Carry. While financial advisory firms bemoan the 50 basis points annual cost to insure, audit and secure physical metals (a price point that is conservative for meaningful allocations), what real estate investor would not gladly trade maintenance, rehab, taxes, and management time and expenses for 50 basis points? A veteran real estate investor appreciates the ability to model out such minimal costs relative to the historic return. Gold carries no guarantees but the reality that gold has appreciated at over 8% annually this century with arguably history's lowest risk profile makes gold's ~50 bps cost of carry easy to deal with.
De facto government tax versus de facto government subsidy. And while real estate is struggling in many sectors and geographies, recognize that real estate prices are still nonetheless artificially elevated by our government’s $9 trillion in quantitative easing (QE) bond purchases. Buyers of real estate must realize that they are paying a price above where free markets would price real estate in light of government bond holdings. In contrast, our government QE purchases have short-circuited the bond market’s natural warning signals that take shape in higher yields. This has delayed the rise in gold prices - essentially creating a government subsidy of gold. It certainly is an unintended consequence of the Fed’s actions but one we should seize upon as a fabulous long-term opportunity for investors in our opinion.
Lack of correlation to financial assets. While strong inflation historically is a headwind for real estate as mortgage rates rise coincidentally, higher inflation has historically been very positive for gold.
Diversification from the financial system. Just as America itself is overly indebted, the presence of more than a quadrillion dollars in derivatives portends that at some future time there will be stress in the financial markets. Unlike real estate, gold functions outside of financial markets, giving real estate as well as financial investors much desired diversification from the financial system.
And it is not only real estate that is flashing warning signals. This week Morgan Stanley spoken in agreement with us of the disconnect between the stock market and the economy with the S&P trading at a P/E ratio of 37 and a CAPE ratio of 37, both of which are more than two standard deviations above historical averages. Recall that one of the most important determinants of stock market success is not overpaying at the time of investment, something that is difficult to achieve at these valuations. Last month corporate bankruptcies hit a 15 year high, further indicating that caution is warranted.
In conclusion, we remain in a financial bubble. This bubble may be expanded further with the Fed's about face in recent days. Knowing when the financial bubble will burst is essentially impossible, but history tells us you want to have your plan in place before that moment to make sure you and your family are prepared for the return to financial normalcy.
While these data points are short term in nature, we recently launched the first episode of our God and Gold LIVE video series to connect with investors. Our topic for the first episode was “What’s in a Name?” We chose the name God and Gold believing that those represent the two topics that contain the most damaging and widespread lies impacting Americans. And unlike trading points, you don’t have to worry about these two issuesreversing overnight. These issues will impact your family and our nation, and we believe getting on the right side of these two issues will bring great blessings for you, your family and America. Click here to watch the replay.
God bless & God bless America.
Past performance is not indicative of future results.
Past performance is not indicative of future results.
