[This is an excerpt from our end-of-year letter to investors, published Dec. 30, 2023. Link below.]
It’s the big things that matter.
We live in a world that demands a constant stream of new and interesting content to digest. Financial news sites like CNBC or Bloomberg update articles multiple times a day with theories and predictions about why things are moving in one direction or the other. And, as a result, we are prone to over-extrapolating a lot of the noise caused by “little things” that eventually just fade away into the background.
Ultimately, it’s the few big things (more obvious often than we’d like to admit) that really matter.
The past several years have seemingly been a steady stream of one random unprecedented event after the next, when in actuality they are the logical and sequential consequences brought about by the pandemic — it was the big thing.
The onset of covid led to a global shutdown. The shutdown broke supply chains along with decades-old patterns and systems that had become ossified within both society and the economy. The response to the shutdown was unprecedented government stimulus, vast amounts of newly printed money, and a 0% interest rate monetary policy. This simultaneous shrinking of supply with a rapid expansion of demand led to inflation, which in turn led to the first significant rate hiking cycle in nearly 50 years. And rising interest rates led to a fall in asset values because, as we’ve now stated ad nauseam, prices move down when interest rates go up.
As the system continues to work through the domino effect of unwinding the past several years, we still expect tighter monetary policy to result in an inevitable dampening of the broader economy, including slower growth, rising unemployment, and potentially a significant decline in stocks. The irony is that in some sense regardless of the reason rates come down—either because the Fed was right about a soft landing or we are correct about a recession—it’s strongly positive for real estate values and, in our expectation, the Fundrise portfolio (again, remember that in the near term lower interest rates boost real estate values).
Read the full letter: https://lnkd.in/eJyUum-N