INTERNATIONAL

The wars in Afghanistan and Iraq took second seat to the bailout of Greece at $18 billion in May from the European Union nations. In order to get the loans, the Greek government had to make good on austerity measures, cutting salaries and pensions, raising consumer taxes and pledging to crack down on tax evasion that is said to be some of the worst in the developed world. There were protests and several people were killed and many injured.

Australia decided to implement a new 40% “super profits” tax on the mining industry. Kevin Rudd, Australia’s prime minister noted that large amounts of the shares of Rio Tinto and BHP Billiton are held by foreign shareholders. The high commodities prices were given as the reason for the increased taxes.

NATIONAL

US Inflation is at a 44 year low while it has sped up on booming economies such as China and Brazil. At the same time emerging economies are taking measures to contain inflation, some economists in the United States are worried that we are falling into deflation.

According to the Consumer Confidence Index, the nation is feeling better about itself. The index has risen smartly since February.

Taken from Conference Board website

Confidence among small businesses is up significantly. The National Federation of Independent Business’ optimism index increased to 92.2 last month from 90.6. But the measure still indicates that the recovery will take some time to gain strength.

REGULATIONS

The Environmental Protection Agency handed down a new mandate that is certain to push up costs of remodeling homes in America. As of April 22, work done on any home that was built before 1978 must be completed by an EPA certified firm and each employee must get his or her certified renovator license in order to disturb more than six square feet in the interior or twenty square feet on the exterior of the home. The feds agreed to delay enforcement until October 1, 2010. It seems that several states have no one certified to do the work!

ENERGY

The Democrats in Congress and the President are targeting the oil & gas industry. In April Washington Democrats made their case for an expansion of subsidy programs that would be paid for by repeal of all the oil and gas industry tax breaks. While this is unlikely to happen, it certainly shows what those in control think of the traditional energy industries.

It doesn’t help the atmosphere that BP has a huge blowout flowing millions of barrels of oil into the gulf coast off of Louisiana. As of this writing, the well has been out of control for almost fifty days with no immediate hopes of capping the well. The government has issued a moratorium on deep offshore permits.

Gas futures are falling on worries of the economic recovery. With a current price of less than $5.00 mcf, the rate of new wells being permitted is down. That is too bad in that natural gas is certainly a cleaner fuel than coal.

BAILOUTS

• Treasury Secretary Tim Geithner’s new estimate of the cost of the bailout is as low as $87 billion after an initial figure of $500 billion. While this is good news, it certainly shows that the federal government didn’t have a good grasp on the estimate in the first place.
• Speaking of bailouts, Fannie Mae and Freddie Mac were both delisted from the New York Stock Exchange. The two GSEs, which took over $150 billion in federal aid, seem to show few signs of ever paying the funds back.
• But General Motors, out of bankruptcy, reported its first quarterly profit since 2007. The firm reported an $865 million profit for the first quarter on $31.5 billion in revenue. Chrysler is a different story by the way.

JOBS

The recovery seems to be too weak to cut the jobless rate at this time. For many Americans, it doesn’t seem like a recovery. The unemployed and the under employed both continue to be high.

RETAIL REPORT

• Lackluster May sales cast doubts on the strength of the recovery. But there were good signs from the upper end retailers. While JC Penny sales were down 1.8% and Stein Mart was down 5.8%, Neiman Marcus was up 7.8% and Costco was up 9%. This shows that the wealthy moved from the Wal-Mart quality stores back into their traditional upscale venues and they are spending again.

CONSTRUCTION

• Home building is an essential part of our economy. While the federal tax incentive did help, home and apartment construction permits sank without the tax break to an annual rate of 593,000 in May. And existing home sales took an unexpected 2.2 percent decrease to a 5.66 million annualized rate in May.
• But the homebuilder confidence index in May rose three points to the highest since 2007. That is the good news. It rose to 22. A reading of 50 is positive so the indicator is still substantially negative.

POSITIVE INDICATORS

• Restaurants have been buying accessories and equipment for the first time in quite a while. When the recession hit, the restaurant operators put a halt on all discretionary spending. Now there is a pent up demand for FF&E purchases.
• The architecture billing index was up to 48.5 in April. The new-projects inquiry index was up to 59.6.
• And, last but not least, pick-up truck sales shifted into high gear last month with a 19% increase from the same month a year ago. Again, this is small business spending money to replace older and less efficient equipment. This is how an economy grows, not with government giveaways.

TEXAS

• Texas led the nation in job growth again in May for the fifth month in a row. The state added 43,600 jobs according to the Texas Workforce Commission. The state’s jobless rate remained 8.3% compared to a national rate of 9.7%.While the number is positive, it is still weak by Texas’ standards.
• Metrostudy, Inc., the company that tracks homebuilding across the country, says Texas will be the first state to recover from the housing market downturn. Our prices are also expected to remain stable.
• Policom, a Palm City, FL company that specializes in analyzing local and state economies, measures 23 economic factors to rank how a metropolitan area’s economy performs. It ranked Seattle, Washington DC and Denver numbers 1, 2, and 3 and Houston, DFW and Austin in the top twelve for potential for growth.
• Dallas recently hosted the Windpower 2010 convention. Texas was applauded for what it has done in the industry. Texas is still number one with over 10,000 megawatts of wind generation capacity. Iowa is number two with 3,670 megawatts.
• Wal-Mart has made Texas a stand-alone division. The state employs 144,170 people in its 443 stores and 16 distribution warehouses which do about $35 billion in sales. This is about 10% of the company’s total $305 billion in 2009 US revenue.

DFW NORTH TEXAS REGION

• The DFW Metroplex saw foreclosure postings fall for the 3rd month in a row. The drop was 7% from last year.
• But commercial postings are up significantly and reached about 256 properties in the postings for June. Commercial foreclosures are expected to increase throughout the year.
• The Tarrant County postings were up 98% over the first six months of 2009.
• Lenders finally foreclosed on the Four Seasons Resort and Club at Las Colinas for $122 million. Bentley Forbes had put over $60 million in improvements in the hotel on the 400 acre property where the Byron Nelson Golf Tournament is played.
• Hotels are common on the foreclosure block in our area. In the first four months of 2010 (43), there were more hotel foreclosures than in all of 2009 (41).
• The warehouse market is also in bad shape in our market. At the end of March over sixteen percent of the warehouse and distribution product was vacant, the highest in more than ten years.
• But this is just the bad parts of our local economy. We are still in the fastest growing state in the country and our economy is pulling out, albeit slowly.

FORT WORTH CBD

Texas Health Recourses announced a 50-bed acute rehab center in the Medical District. The head of real estate told me that the company had been attempting to assemble the land for over five years.

FORT WORTH & ALLIANCE AREA

Hillwood signed an expansion lease with Lego Systems in Alliance. The total lease is now just less than 600,000 square feet.

SUMMARY

Are we coming out of this economic mess? I think so but this is a bad economic downturn and this administration is the worst since Jimmy Carter in terms of being anti-business. Most businessmen, especially small operators like us, are gun shy right now. It seems every time we turn around the government is touching another part of business without any regard for what it means to those that pay the most in taxes and create value in our economy. So when will we see the light at the end of the tunnel? I don’t know and we want to make certain that it is not a freight train coming at us before we get in it.

Caution is the key thought for the day. Reduce debt any way we can. Do everything to keep the improved properties leased and the tenants paying and cut expenses any way we can. Do whatever we must to place unimproved assets into service and create cash flow. Other than that, most of this is beyond our abilities to do much more than monitor the situation and be ready to pounce on any opportunity that presents itself.