Dirty Thoughts: Pollyannas, Cassandras, and questioning my own reality
Last week my cognitive was seriously dissonanced. Which is a very good thing.
Pollyanna
Last week my cognitive was seriously dissonanced. Which is a very good thing. First, it gives me something to write about. Second, it makes me pause and look around to make sure I know where I am, what I am doing, and what I am talking about.
Scene. I am at a property waiting on a client. The other agent is there and we get to talking shop. He is a commercial agent with a general commercial focus. He has been in the business for a couple of decades. Great. It is time for me to gain some intel. I pulled his string by asking questions and then I shut up and let him talk. And talk he did. But the words that came out contradicted everything that I think that I am seeing and hearing about real estate. According to this very likable fellow, commercial real estate in our area is hopping and popping and won’t be slowing down any time soon. He is bullish. He has nothing but positives to report. He is a Pollyanna1.
I leave the conversation a little rattled. What does this guy see that I don’t? Either he is lying to himself (Ostrich Syndrome), he is lying to me (I didn’t smell the liar scent), or he is right and I am the one who is full of BS. I’ve just been gaslit, and it is time to reevaluate my perception of reality.
I’ve previously discussed narrative and Dirty Larry and how he drives markets. Big parts of individual narrative are the beliefs and conclusions that form them. And beliefs and conclusions are based on assumptions. Assumptions are based on experience, emotion, personality, perceptions, and what information a person takes in.
Cassandra
Folks, I am not a rainbows and unicorns kinda guy. I am a Cassandra2. In my previous careers, I was a Marine and a cop. Let that inform you about the way I perceive the world. As in, ‘hey, is there a landmine in that field that could kill me - I’d better investigate before I walk through it’. I am an enthusiastic supporter of Overthinking and Doing Due-Diligence till you Die. As a real estate investor, I’ve been burned by being overly optimistic and just plain bad luck. The following is not a joke: I was burned by a house flip project on a street named POLLYANNA!
Going into the deal everything was rainbows and unicorns. I was excited about it. But when I finished the house and listed in March 2020, COVID was blowing up. I was scared and convinced that COVID was the comet that would kill the economic dinosaur. I was half right. So I dropped the price of that house like a rock to get out from under it before it was too late and sold at a very painful loss. Of course I didn’t know what was about to happen to real estate. I thought I had dodged a bullet. Then came stimmies for everybody and that incredible 2-year run. Ugh. Whatever. Who says life can’t be ironic and poetic and hilarious in a joke’s-completely-on-you kinda way at the very same time.
That experience of mine carries with it a lot of conflicted baggage that still affects me today. It is simultaneously a warning to not be overly optimistic nor to doubt the ability of Dirty Larry to come out of nowhere and quickly make everything either just great or very not great for no apparent reason. And all to the frustration of your thorough analysis and carefully laid plans. That experience also served as a lesson to constantly question my own assumptions.
Right now my narrative is that real estate and the economy, very generally speaking, are cows in line in the slaughter chute: things are looking scary but the wurst (sic) has yet to come (Jerome Powell is the guy at the end of the chute with the knocker). That is what the numbers tell me. That is what the data say. But sometimes I have to question whether I am just in a self-induced fever dream and that, in fact, everything is not as dire as I think. So what does this other agent see that I do not?
On the bright side…
He sees continued transactions and listings. He sees a functioning market. He is very busy. Construction is everywhere. He is in the process of finishing a newly constructed commercial office project of his own. He sees the opportunity of the industries coming to town. He’s been through two downturns (Dotcom bubble of 2001 and Great Recession of 2008) and knows that this too shall pass. People will get used to it all. Things might slow down for a bit but folks need to live and work and transact and they will find a way. They always have.
You know, he has a point. In the long term, I can’t say that I disagree. If I did, I really should just pack it up and head home.
But on the other hand…
The folks that I trust and respect and look up to and am pretty sure won’t feed me bunk all agree that real estate is headed for hard times for the next few years. They see what I see. The magnitude, of course, depends on the type of real estate one is looking at - residential, commercial, land, farm and ranch. Location too. Each place and niche and individual property will have a story of its own. It all depends on very particular circumstances and each must be considered individually. Also construction and commercial tend to lag residential. Maybe this guy’s information and perception haven’t caught up yet. Maybe he is worried and his head is in the sand. Maybe he doth protest too much. That is what I tell myself anyway. That is my narrative.
Nobody cares until it’s time to care
The other conclusion of this little anecdote is a necessary re-acknowledgement that we do not all occupy the same reality. When it comes to real estate some see doom and gloom. Some see opportunity. But do you know what? Most of the world sees nothing at all. Because they do not care about this subject. Not even a little bit. At least, not until they need to sell their house. Or want to buy some land. Or lease some office space. But for now most folks out there don’t give a single Dirty Thought to real estate and markets and the economy. They are instead focused on their businesses, their lives, their kids. They are focused on football and baseball and what are we going to have for dinner tonight and OMG what has Taylor done with her hair. They are focused on all of the stuff that is important to them and in the things that are in their face right now. Such is life.
Different scene, same day. A very good friend of mine who is a dentist is one of those who has no interest in what is happening in the real estate market. Our conversations usually lay elsewhere. But he is a good friend and so whenever we meet he asks me how my business is going. And I start in on real estate and interest rates and the crazy market at hand. His eyes glaze. He smiles and nods. And I smile too. Then I stop going on and on about the subject that only a real estate nerd could love. And I start talking about the Astros and baseball because that is what he cares about. And you know what? Who am I to argue that baseball isn’t more important right now anyway?
Definition of Pollyanna
: a person characterized by irrepressible optimism and a tendency to find good in everything (Merriam-Webster.com)
Definition of Cassandra
1: a daughter of Priam endowed with the gift of prophecy but fated never to be believed
2: one that predicts misfortune or disaster (Merriam-Webster.com)
Dustin, like you I fall into the Cassandra camp. After the last few days in the stock market - maybe I, too, am missing something! I read this on your twitter feed by Levi: https://twitter.com/Levijameshere/status/1585267272507019264?s=20&t=d21OGuDQZGaZhU1C2ejeHg
Maybe Texas will be the exception to a downturn? I worry about the drought and heat that is forecasted for Texas and the implications that might have on immigration and land values. Do those issues concern you? I have read, that due to weather, the future is in the mid-west. Thank you for the thought-provoking article.
My doubts about the stock market started not long after I left active duty service in 2010 and began a very short tour as a financial advisor for Merril Lynch. Lessons learned: the system is set up such that retail investors are the gazelles and anyone with a Series 7 is a predator. There are certainly good financial pros out there but there are more than a few sharks too. And there are also just a lot of normal humans incentivized to get as much of your money as they can and not always for your benefit. I also began to understand that the entire equities space is so much pushing around of (digital) paper without much productive end. As stated by Jeremy Irons’s character in the fabulous movie, Margin Call: “(money is) not even real; it’s made up.” When money and paper become the end instead of the means to an end (as it should be), you know our economy is badly skewed. It was at the end of that year that I realized that I was a real estate person. I also realized that while I am absolutely fascinated by financial markets as a human institution, I have zero faith in them to actually benefit me.
I listened to the Edward Chancellor episode on Grant Williams podcast. I haven’t read the book yet but have it downloaded and ready for a long trip (or time on the skid steer clearing cedar). I don’t consider myself as a strict adherent to any one economic dogma, but I do like Hayek’s (and the Austrian) understanding of the economy as being far too complex a thing for any group of people to fully grasp and therefore control. I’ve been reading a lot lately about systems theory (started with weather researcher Edward Lorenz a few decades ago). I find that this is absolutely the correct framework to consider the economy (which I identify as our “Culture of Exchange” because it is far more culture and sociology than hard numbers and mathematics). Which basically means that almost any attempt to control an economy will be met with counteracting forces and tertiary, inverse, and unintended reactions that doom such attempted control to failure. But I am pretty sure it will take us decades to come back around to this fact. In the mean time, the eggheads at the Fed and the nincompoops in government will try desperately to bail water from the Titanic. And while I have no clue precisely what will happen, I am pretty certain that any consequence that they lay out as intended will not come to fruition.
I hear you about the politics of Texas. Having spent quite a bit of time in Cali, it is an incredibly beautiful state being squandered by nonsense. I also know more than a few people (two of whom I directly encourage and assisted) who were Cali refugees and now hardcore Texans. And when I say hardcore Texans, I mean Hard-Core. We also have the intentionally planned inefficiency of our legislative system in our favor. There is only so much an activist can get done when the Leg is in session.
I love the Cross Timbers region of Hamilton-Stephenville-Brownsville. Beautiful country. My g-g-g-great grandfather and mother (and the original Texas emigres on my father’s side) are buried in a little farm cemetery outside Dublin.