Life is all about creating skills and value and taking them to the marketplace to see what they return for you.2
One day my mentor, Mr. Earl Shoaff, said to me, “Jim, if you want to be wealthy and happy, learn this lesson well: Learn to work harder on yourself than you do on your job.” I1 must admit that this was the most challenging assignment of all. This business of personal development lasts a lifetime. You see, what you become is far more important than what you get. The important question to ask on the job is not, “What am I getting?” Instead, you should ask, “What am I becoming?”What you become directly influences what you get.1 Think of it this way: Most of what you have today, you have attracted by becoming the person you are today.
I’ve also found that income rarely exceeds personal development. Sometimes income takes a luck jump, but unless you learn to handle the responsibilities that come with it, it will usually shrink back to the amount you can handle. It is hard to keep that which has not been obtained through personal development. So here’s the great axiom of life:
To have more than you’ve got, become more than you are.
The marketplace is a demanding place. There is plenty of opportunity, but you’ve got to get ready for it and prepare for it. We’ve got to spend a portion of this year getting ready for next year, and we’ve got to spend a portion of this decade getting ready for the next decade. Hopefully the reason why we’re here, looking well, doing fairly well, is because we spent a portion of the last decade getting ready for this decade.
So a big share of life is spent getting ready, getting prepared, and part of it is the development of skills. I’ve got a good key phrase for you to start with in developing skills that make for success in the marketplace. First, it starts with personal development, self-improvement, making measurable progress.
Personal development is a push. It’s a struggle. It’s a challenge. There wouldn’t be any winning without a challenge. That’s what life is all about. It’s the struggle and the challenge to develop ourselves and our skills to see what we can create in the way of value in the marketplace.
Life is all about creating skills and value and taking those skills and value to the marketplace and what it will return for you. Now it also has a social part, a spiritual part as well as a physical part, and we’re going to talk about some of those parts.
New habits don’t come easy, but they can be developed. Sometimes when you develop a lot of momentum in one direction, it’s not that easy to change but it is possible. It isn’t easy, but it’s possible. Somebody once said, success is 10 percent inspiration and 90 percent perspiration. You’ve just got to read the books, learn the skills, put yourself through the paces, do the mental pushups and get yourself ready.
Inspiration is fine, but inspiration must lead to discipline. It’s one thing to be motivated, but it’s another thing to be motivated sufficiently to take the classes, do the reading, do the repetition, go through it over and over, until it becomes part of you. And those are challenges. They’re not easy, but they’re challenges that if you win and develop and grow, that’s what determines your place, your return, your equity, the worth you get from the marketplace.
I’ve divided personal development into three parts. Let me give you those:
I know when you talk spiritual you can get in an argument most anywhere, but I have a single belief that says humans are not just animals. Some people believe we’re just an extensions and an advanced form of the animal species, but I believe humans are unique. Spiritual qualities make us different from all other creations. Now I’m an amateur on that side of it, so I can’t give you a lot of advice there, but I would recommend you be a student of the spiritual side of your nature. And whatever you have to read and assimilate to develop in that area, I would strong suggest you do.
The mind and the body work together, so we’ve got to give some attention to both, mind and body. Development of mind and body. On the physical side, you’ve heard the phrase that says treat your body like a temple. A temple. Not a bad word. Something you would take extremely good care of. Treat your body like a temple, not a woodshed, right? A temple. Take good care of it.
The only house we have to live in currently is the physical body we have and that’s part of success in the marketplace. That’s physical well-being. It’s feeling good about yourself physically, so that you stride into the marketplace with a sense of self-worth, self-confidence, having taken care of that end of it. It covers several parts, including good nutrition. Physically you can do extremely well if you just pay some attention. Read all the books about nutrition to make up your own mind. There are a lot of weird conflicts in the nutritional aspect, but you just have to read and decide for yourself a good plan for you, a good health plan.
Then there’s physical appearance. Be skillful enough to take care of your appearance in the marketplace. It has a lot to do with your acceptance. A big share of it is how you appear to other people—on the job, performing, company, community. You say, well, people shouldn’t judge you by your appearance. Well, let me tell you, they do! Don’t base your life on should and shouldn’t. Only base your life on realities. Sure, when people get to know you they’ll judge you by more than what they see, but at first they’re going to take a look. So, physical appearance is part of the physical side of personal development.
Be conscious of self, but not self-conscious. There’s a certain point that we need to be conscious of ourselves, take care of it, then let it go. Some people worry about their appearance all day and it detracts rather than adds. So take care of it, and then let it go. Do the best you can, and let that get the job done. Be conscious of ourselves, but not to the point of being self-conscious.
Here’s the third part to personal development: the mind. Stretching your mind, developing good thinking habits, good study habits, pursuing ideas, and trying to find ways to apply them to human behavior and the marketplace. All of that takes mind-stretch and mind-exercise. Part of it is stretching yourself in reading habits. You can’t live on mental candy, so you’ve got to have the full range of mental food in order to grow. We call that mind-stretch.
Your willingness to tackle subjects that are difficult and that most people have decided to let slide gives you an extraordinary edge in the marketplace. How can you master part of the high skills, the extraordinary skills that make you an unusual performer in the marketplace? It takes mind-stretch. Some people skip poetry and literature, history and a lot of things that seem a little difficult to attack. But if you always back away from something that seems a little difficult at first, you leave yourself weak. You leave yourself unprepared in the marketplace. So, don’t be afraid to tackle the heavyweight stuff. It may be a lot easier than you think once you get into it and learn skill after skill.
The Bureau of Economic Analysis will release its third and final estimate for first-quarter growth of the U.S. Gross Domestic Product (GDP). Since the recession, the first quarter has generally been brutal for the GDP, and 2016 has been no exception. The advance estimate for Q1 released in late April came in at 0.5 percent, while the second estimate for Q1 released in late May came in somewhat improved but still weak at 0.8 percent.
Housing has not necessarily suffered because of the weak GDP growth in Q1, however, “Real GDP has been on a downward trend since the second quarter of 2015 (growth: 3.9 percent), a result of slower or negative growth in personal consumption spending, private investment, and exports,” said Carmel Ford of the National Association of Home Builders (NAHB), in late May. “It is important to note that although overall private investment has dropped, residential fixed investment growth has accelerated. The residential fixed investment component of GDP grew at a seasonally adjusted annual rate of 17.1 percent in the first quarter, up from 10.1 percent in the fourth quarter of 2015. This GDP component includes the construction of new single-family and multifamily units, remodeling, and other activities related to housing.”
While the sentiment for most of the year among economists and analysts was that the Fed would raise rates again in June, the forecasted June rate hike did not happen and a series of recent economic headwinds that include a weak May jobs report (only 38,000 jobs added) and the U.K.’s exit from the European Union have made it unlikely that the Fed will raise rates again for several months.
Pending Home Sales
In April, pending home sales hit their highest level in more than a decade. Will they continue to rise in May, or will they fall back down to earth? The industry will find out when the National Association of Realtors (NAR) releases its Pending Home Sales Index for May 2016 this Tuesday, June 28, at 10 a.m. EST. The NAR’s Pending Home Sales Index (PHSI), which is based on contract signings, rose by 4.6 percent year-over-year in April to a figure of 116.3 and have now increased year-over-year for 20 consecutive months. April’s level was the highest for the PHSI since February 2006, before the crisis, when it was 117.4.
Existing sales continued upward by 1.7 percent in April and another 1.8 percent in May up to an annual rate of 5.53 million, and the strong PHSI report plus low mortgage rates suggest a continuing steady recovery through the summer. However, the long-term weakness among first-time buyers continues to dampen all sales in 2016. "(The April PHSI) report rounds out a triple crown of April home sales reports with existing home closings, new pending contracts, and new home sales all solidly up as the spring buying season ramped up," said Realtor.com Chief Economist Jonathan Smoke. "Across these metrics, the pace of total home sales is up more than 10 percent over last year, putting 2016 in the pole position to earn the standing of the best year in a decade. Overall, the report is a clear indication that this spring buying season is truly the best in a decade."
Though it won’t be reflected in May’s housing reports, it will be interesting to see how last week’s Brexit vote will affect housing in the U.S. Some economists are predicting that mortgage interest rates, which are already near historic lows (3.56 percent for 30-year fixed-rate mortgages, according to Freddie Mac last week). Greg McBride, chief financial analyst with Bankrate.com, said “Mortgage rates will tumble, possibly hitting new record lows. If you're a borrower, don't wait to lock in your rate, as this opportunity may not last long." NAR Chief Economist Lawrence Yun said, “Demand for U.S. real estate could rise.”
Malls have taken a hit in recent years
It seems, however, as though there might be more problems ahead for this sector. One such issue is the ability of mall owners to refinance their loans. But many of the mall refinance loans issued in the aftermath of the Great Recession will mature within the next 18-24 months. The bankruptcy filings of many retail chains, combined with global uncertainty, could mean a tighter CMBS market, through which many malls are financed. According to Charles Tatelbaum with Tripp Scott PA, the pieces are in place for a “death spiral” for many older malls, as well as smaller ones. As such, he suggests that collateralized loan package investors and retail-focused REITs be cautious when it comes to such investments.
The Proliferation Of Retail Bankruptcies Will Create Havoc For Upcoming Mall Refinancing
Much has been recently written about the proliferation of retail bankruptcy filings for such chains as Aeropostale, Sports Authority, Fairway Foods, Radio Shack and others. There has also been substantial prognostication that the recent bankruptcy filings in the retail sector are just the tip of the preverbal iceberg of what is yet to come. What has not been fully considered is the domino effect of these cases on the mall landlords, the landlords’ lenders and other retailers in the mall. The domino effect takes on many permutations. History has shown that many others besides the mall owners and their lenders will be severely impacted if the renewed financing cannot be obtained, or it is so expensive with a significant interest rate hike that the mall cannot be operated efficiently.
This issue will become acutely serious within the next 18 to 24 months. After the recession, many mall owners were able to refinance their loans to take advantage of the record low-interest rates and the bullish optimism as to the growth in retail consumer spending. Now, many of these loans are maturing which will require refinancing. Bloomberg has recently reported that about $47.5 billion of loans backed by retail properties are set to mature over the next 18 months. While under normal economic circumstances this would not be a significant issue, with the uncertainty of the EU’s future, the world economy and what the Federal Reserve may or may not do this year, the upcoming loan maturities are coinciding with a tighter market for commercial mortgage-backed securities, through which many such properties are financed.
This will have several significant implications for the mall owners, their lenders and current mall tenants. Undoubtedly, assuming that a mall owner is even able to obtain renewal financing, the interest rate will rise due to the market uncertainty, the greater cost of money and the increasing risk of retail bankruptcies. Add to this the spate of store closures already known as well as those that are on the horizon, and mall owners will be slapped with a significant monthly debt service obligation plus tighter loan covenants. This will leave the mall owners with less room to maneuver if a large tenant or several smaller tenants financially fail to create unexpected vacancies. The domino effect will then be passed on to current and future tenants with either decreased landlord services due to the cash flow pressures or higher common area costs to maintain the service level.
The mall owners’ cash flow issues will also be present when a retailer enters Chapter 11 and gives the landlord for an underperforming location an ultimatum as many are doing – “either significantly reduce the monthly rent or face a rejection of the lease which will leave the space vacant.” The decrease in occupancy for the mall owner can also impact any percentage rent revenue that is added to the base rent, as all of the tenants will have sales suffer when there is an increase in unoccupied retail space.
This overall situation has the chance of cascading into a death spiral for many older malls and those serving small and rural communities. The U.S. is already plagued with vacant and shuttered malls which have created problems for lenders and local taxing authorities. With the increased use of online shopping (from on-line retailers as well as the online operations of traditional brick and mortar retailers), unless shopping mall owners are willing and able to invest heavily in capital improvements creating a destination mall (such as ones with an ice skating rinks, dine-in theaters, upgraded food courts, upscale dining venues as examples), they may no longer be able to maintain existing tenants or attract new ones.
Investors in collateralized loan packages and REITs that focus on retail centers need to be cautious over the next two years as the existing paradigm may be a thing of the past, and the investments may be jeopardized. Of course, the domino effect of this possible disaster may have many other permutations that will put a further strain on what many think is still a struggling economy.
Thus, the domino effect of this issue will impact shopping mall owners, the owners’ mortgage lenders, the remaining tenants, the employees whose jobs are lost as a result of the store closures, the local municipalities where tax revenue will be diminished and the communities themselves that will have a blighted area. The real question is whether there a solution to this possible upcoming calamity.
While the nation’s 50 states remain divided on the legalization of marijuana, New York’s Compassionate Care Act has freed marijuana companies to open dispensaries in the nation’s largest city, capturing the attention of accredited investors nationwide.
The law legalizes certain types of medical marijuana in the Empire State and is expected to lead to the opening up of the state’s first marijuana dispensary in New York City in January—a development seen by some as a significant boost to bringing more investment dollars into the cannabis industry. “We are receiving inquiries from family offices, funds and other more traditional investors looking for ways to invest in legal marijuana on the East Coast,” said Leslie Bocskor, managing partner of Electrum, a consulting company in Nevada that is launching a marijuana-related hedge fund.
Vireo Health, for example, purchased land in Fulton County in upstate New York to construct its grow facility and is renting a building in the borough of Queens that will house a dispensary in preparation for its grand opening in January. The four other pot dealers that were granted licenses by the New York Department of Health are Bloomfield Industries, Columbia Care NY, Etain and PharmaCann. “The New York market will see much more sophistication much sooner, whereas it took years in other states for their operations to mature,” said Troy Dayton, CEO of the ArcView Group, a marijuana investment and research firm. Vireo Health founder Kyle Kingsley plans a $30 million national capital raise to launch dispensaries in other states, but is steering clear of private equity and venture capital money at this time. “We prefer private investment from high-net-worth individuals who come with no strings attached,” Kingsley told Private Wealth. “We want to maintain control of the enterprise."
So far, no institutional investors have come forth, he added. “They are taking meetings, but as long as marijuana is classified as a Schedule 1 drug by the [federal] government, we don’t expect institutional investors to invest,” said Kingsley. Investors must be cautious about where they invest their money because the Schedule I category under the Controlled Substances Act is the Drug Enforcement Administration (DEA)'s most restrictive level. “Unless and until the federal government de-schedules marijuana or at least re-schedules it, we will see the same complications on investment, investing and banking issues in New York that we’ve seen in every other legal state,” Savino said.
That’s unless the business in question is operating ancillary to a dispensary or grow facility. “New York financiers have substantial opportunities to invest in technology and infrastructure to support the cannabis industry, not only in New York but nationwide,” said Scott Greiper, president of Viridian Capital Advisors in New York. Investing in the ancillary marijuana industry has less legal risk than investments in companies that are directly involved in the production and sale of cannabis because ancillary businesses do not directly handle the plant. “Companies that help growers lower production costs or stay compliant under the Compassionate Care Act will be very attractive to the traditional institutional investor,” Greiper said.
One area of opportunity for interested investors in New York would be to establish a service that transports marijuana from dispensaries to the homes of certified users.
“We will see entrepreneurs who want to develop a delivery system because dispensaries are not going to be able to reach all the patients, so that’s an ancillary business,” said N.Y. state Sen. Diane Savino.
But transporting marijuana would be considered illegal under current law. “The question is unanswered as to whether or not that delivery system would have to be part of the overarching license or … subcontracted,” said Savino. “We’ll know more in January, when medical marijuana is actually in circulation.” The ArcView Investor Network, whose about 500 investor members are accredited, placed more than $38 million into 55 marijuana companies in 2015. “Historically, the ones that touch the plant raised more money,” said Dayton.
For example, this year, Vape Exhale, a vaporizer manufacturing company, secured $250,000 in financing compared to $1 million for Steep Hill Labs, a cannabis-testing company. “There are droves of ancillary businesses that will benefit from the New York market such as point-of-sale software,” Dayton said. However, there are a number of obstacles that make it difficult for even ancillary entrepreneurs and investors to profit, including restrictions on business expense tax writeoffs, Savino said. “There’s still a question as to whether a bank will accept your money if you’re doing business in the marijuana industry. So it’s complicated. But it’s also incredibly lucrative for those who can figure it out,” she said.
New York regulations under the Compassionate Care Act contain a number of provisions, including a ban on edibles and the legalization of only extracted marijuana oil that may be vaporized, swallowed in a capsule or absorbed in the mouth. “We believe the early years of New York’s medical cannabis program will be challenging for early entrants, specifically the five licensed firms, with their substantial start-up costs. However, the program will adjust and become less restrictive, creating a very lucrative environment over time,” said Greiper.
New York Cannabis Alliance Founder Evan Nison favors ancillary cannabis companies such as MarijuanaDoctors.com and Loft Tea. “Technologies, apps, and marketing companies could very well be merger and acquisition targets in New York come January,” Nison said.
Tuesday’s CoreLogic May 2016 National Foreclosure Report provides further evidence that the housing market may be reaching a “new normal.” The report showed that foreclosure inventory as well as completed foreclosures continued to declined in May 2016 from where it stood the prior year in May 2015. Despite the decline, the foreclosure rate (1 percent) remains twice that of the national long-term average (0.5 percent). This is due to the individual rates on a state level and is not, in fact, conducive to the progress already made nationally.
The foreclosure inventory declined by 24.5 percent and completed foreclosures declined by 6.9 percent compared with May 2015. Additionally, the number of completed foreclosures nationwide decreased to 38,000 in May 2016 from 41,000 in May 2015. These results also represent a decrease of 67.9 percent from the peak of 117,813 completed foreclosures in September 2010.
The national foreclosure inventory held approximately 390,000, or 1.0 percent, of all homes with a mortgage in May 2016 compared with the May of 2015 foreclosure inventory of 517,000 homes, or 1.3 percent. It was also determined that the May 2016 foreclosure inventory rate is the lowest it has been for any month since October 2007. “The foreclosure rate fell to 1 percent in May, which is twice the long-term average of 0.5 percent. However, this masks the underlying progress at the state level,” stated Dr. Frank Nothaft, chief economist for CoreLogic. “Twenty-nine states had foreclosure rates below the national average, and all but North Dakota experienced declines in their foreclosure rate compared to the prior year.”
Because of the progress CoreLogic felt was derived from the state level, the report felt it was important to note that the five states with the highest number of completed foreclosures consisted of Florida with 63,000, Michigan with 45,000, Texas with 27,000, Ohio with 23,000, and California with 23,000. These five states account for almost half of all completed foreclosures nationally. This is compared to the four states and the District of Columbia with the lowest number of completed foreclosures. They are the District of Columbia with 139, North Dakota with 323, West Virginia with 494, Alaska with 648, and Montana with 690.
Additionally, the report also included the four states and the District of Columbia that had the highest foreclosure inventory rate. They were New Jersey holding 3.6 percent, New York holding 3.2 percent, Hawaii holding 2.1 percent, the District of Columbia holding 2.0 percent, and finally Maine holding 1.9 percent. The report compared these results with those for the five states with the lowest foreclosure inventory rate. Alaska held 0.3 percent, Arizona held 0.3 percent, Colorado held 0.3 percent, Minnesota held 0.3 percent, and Utah held 0.3 percent.
CoreLogic found the number of mortgages in serious delinquency decreased by 21.6 percent in May 2016 from the previous year to 1.1 million mortgages, or 2.8 percent of total mortgages. The serious delinquency rate for May 2016 is the lowest it has been in more than eight years, according to the report. On a month-over-month basis, CoreLogic reported that the foreclosure inventory fell 3.0 percent in comparison to April 2016. It was also reported that completed foreclosures rose 5.5 percent from the 36,000 reported for April 2016 to 38,000 in May 2016. CoreLogic compares these particular results to data in 2007 taken before the decline in the housing market. During that time, completed foreclosures between 2000 and 2006 averaged 21,000 per month nationwide. “Delinquency and foreclosure rates continue to drop as we experience the benefits of a combination of tight underwriting, job and income growth and a steady rise in home prices. We expect these factors to remain in place for the remainder of this year and for delinquency and foreclosure rates to decline even further,” said Anand Nallathambi, president and CEO of CoreLogic. “As we finally move past the housing crisis, we need to increase our focus on expanding the supply of affordable housing and access to credit for first-time homebuyers in sustainable ways to ensure the long-term health of the U.S. housing market.”