Lately you have recently heard a lot of talk about the market. The stock market. The housing market. Interest rates. Supply and demand issues. And how all of these are related. We want to share our perspective on the current market.
Inflation
The Federal government has pumped about $4 trillion into the US economy since the pandemic began in March 2020, sending cash directly to households, boosting unemployment benefits, and creating several new grant and loan programns for businesses. This artificial intervention led to higher inflation than normal, which is not desired.
The US Fed is constantly monitoring the inflation rate, which is at a 40 year high at 8.5% in March 2022. High inflation is not healthy for the economy. ,This means rising prices for goods and services and cash in the bank loses value at an average of 8.5% rate!
Hence, the Fed as the responsibility to contain inflation and is taking measures to contain it. One of the prominent levers the Fed can utilize is to increase the interest rates (the rate at which money is borrowed in the market). This is going to happen gradually over the next 18 months and is already visible in projects we are investing.
What does this mean? In the future, the cost of raising capital is going to be higher for everyone in the industry, and hence lower expected returns.
What Can You Do?
It would be prudent for an investor who has surplas cash in the bank to put it to use now rather than later.
Cash in the bank is depreciating at 8.5% so you are losing money sitting idle.
Interest rates are going to rise in the near and long-term so it is better to get into cash flow predictable projects locked at lower interest rates.
What is Jupiter Texas Doing?
These are our thoughts based on our read of the market and what we have seen as we conduct diligence on deals. Our filtering criteria has increased from 1:200 to 1:500 projects, We want to raise our bar higher when good returns are scarce. We are focusing on less risky projects with cash flow rather than spectulative deals.
This article is intended for general information and is our opinion only. It is not a complete summary of the matters referred to, and it does not represent legal, regulatory, or tax advice. Readers of this article are cautioned to seek appropriate professional advice regarding any of the topics discussed and in the context of the reader's own financial situation. Jupiter Texas does not undertake to keep readers of this article advised of future developments or of changes in any of the matters discussed herein.
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