What should we conclude from theelection and the latest employment data. First the employmentnumbers. While the data seem good they are notgreat when you look at U6 and participation. Participation stillhas a ways to go to be vibrant. There are now a lot of peoplecollecting money from the taxpayers and not paying taxes. It isclear that this is not sustainable and raising taxes is clearly notthe solution, but would in the end be a loss of revenue. U6 hasanother 300 basis points to drop to be in line with an average goodyear in the US historically. That is a long way togo. At current levels of job growth, it is justbeating population growth, so to get where we need to be willrequire substantially better job growth. The latest Challenger datasuggest that large companies have slowed hiring and anecdotalreports suggest employees are being stretched to the limit. It isgoing to take awhile and some indication thatWashington can actually accomplish something useful beforeemployment steps up to where it needs to be.

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GDP may grow at 3% plus or minuswhich is Ok but not what we need to really get a vibranteconomy. Muchmore is unlikely with Europe on the edge of deflation or a realrecession, and China slowing. The demand drivers are simply notthere and won't be for maybe a few years. With housing continuingto be slow, and the vast over regulation of banks, new mortgagesare simply not going to be available to really grow the new homemarket. The major big bank mortgage lenders are simply not going toexpose themselves again no matter what the administration says itis doing to reduce the hurdle for a qualified loan. Obama andHolder have managed to prove to the banks that government lies andcannot be trusted not to change the rules when it is deemedpolitically expedient. Major lenders are simply never going tobelieve anything the government says, and they are not going outaggressively to make mortgages. Multi may be good but single familyis in for a very long ride. In addition to the regulatory issuesrelated to banks, there are millions of homes now owned by fundsand investors which will come back to the market in the next fewyears. There will be an excess supply for an extended period andthen rates will rise.

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Next we get to can there really beany opening for compromise between t Obama and Congress. I have mydoubts it can be anywhere near what is needed. He clearly is soblinded by his own image of himself that it is a real question whatcan get done. To come out right away and say I amissuing my own rules on immigration and screw you, is about as dumbas one can imagine and sets a terrible tone. The secret letter toIran just compounded the sense of incompetence and desperation todo a deal that it just feeds the justified belief that Obama cannotbe trusted on anything, and is desperate to do anything he in hismind will create a legacy even if it is bad for theworld.

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Then we have the Fed. There willcome a time when QE will cost us with inflation. It may be yearsbefore we see it, but it is lurking. There is also the problem thatreal estate and stack values are somewhat inflated beyond a realvalue by the Fed doing QE and holding rates 60-70 basis pointslower than a free market rate. In time everything reverts to themean and values will do so as well. You need to realize we haveinflated values in CRE today and the day of reckoning will come.There is no way to know when. Maybe in three years when refinancingis required for all the deals done in the 2013-2015 period, exceptthat they will then need to carry a materially higherrate and a higher cap rate. Not agood scenario for value. Mostly it is likely the US economy willcontinue its modest growth and then one day inflation and valuediminishment will happen. You should think about being a seller in2015. Remember the old saying about pigs and slaughter. Waiting forthe extra dollar of perceived value often can turn into no value.We just do not know when it is too late, so being a little tooearly is sometimes the more profitable strategy.

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I believe Obama and some Democratsstill don't get what just happened. The country is done with theexperiment in socialism and over regulation. The Obama generationgrew up believing the government knows best, and corporations andreal estate developers are crooks along with bankers and Wall Stpeople. Hilary just said corporations do not create jobs. Justimagine if she were to get elected and fulfills the rumors that shewould appoint Elizabeth Warren as Secretary of Treasury. We wouldall be toast. It could happen. Elizabeth Warren is far moredangerous to your net worth than Obama has been.

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Bottom line, things are better butnot great. The risks are still there and growing with Obama stillnot doing anywhere what is needed to destroy the terror threat.Give good consideration if the risk of missing a little more upsidein a rising rate market is greater than the risk of a downsideblack swan event.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.