Keep Your Eye on the Goal

With the purported bias in the news media and the posturing being done by domestic politicians and foreign leaders, it’s very hard to determine what is reality. And since the coverage of Trump in the US press runs across the sentiment spectrum, one can’t be sure whether the news we’re consuming is accurate or erroneous.

The EU leaders are so dissembled by Trump, that they lash out with extreme statements. The Chinese are deep in negotiations on trade and North Korea and, thus, are publicly posturing to save face and to try to influence the US media. Iran is now finding itself in a box with serious problems, so it’s making threats and posturing for home consumption and world influence with the EU. Kim Jong-un is acting out, trying to look like he is not conceding. And then there is Russia, which may or may not be spewing false reports on social media.

So in the end, it’s very hard to know what is really happening.

China’s Xi wants to build a powerful economy and to do what the country has done for centuries, which is to protect the kingdom from foreign invasion. It is of zero benefit for the North Korea issue to be allowed to escalate, and it’s in Xi’s interest to see it resolved since any sort of war on its border is very bad for China. Letting Kim continue to upset things is not in China’s best interest anymore. It would seem that China will try to help Trump get to a denuclearization deal.

They will also find a way to work out the trade issues; the WTO has been useless in getting China to play nice. China holds out access to its giant market as bait and uses its huge reserves to press other countries to comply to its demands through silk road investments in infrastructure, but it always has big strings attached. Trump is now pushing back and Xi realizes he cannot get away with the same old tactics any longer. He will find a way to work things out.

The EU is not used to a US president not complying with its demands. Trump and his national security team are of the position that what they deem world peace and anti-terrorism should not be traded for new trade opportunities. I believe Merkel just focuses on trade and seems oblivious to the real threat Iran poses. There are already violent protests, strikes and unrest, especially in the south. Tough sanctions will squeeze the Iran economy much more and lead to more internal unrest. Trump and his team see an opportunity to deal Iran a major blow without going to war.

Putin, meanwhile, is finding his influence in both the US and Eastern Europe waning. Once again, it is the Germans who seem not to get it with their refusal to spend on defense even though they are the ones most at risk. They are more focused on trade than security.

For commercial real estate, all of this means we are in a major inflection point in history. Maybe North Korea will really do a deal. Maybe the EU will see that Trump is intending to crush Iran with tough sanctions and will move against EU companies if they violate it. In the end, the Iranians have a collapsing economy and no friends in the region that can bail them out. Russia is in no position to bail out its economy and now, Putin says it’s time for all foreign troops to leave Syria. That includes Iran. The election in Iraq leaves Sadr in control and he wants Iran out of Iraq. In time, Iran will be isolated and there may be a revolution.

All of this makes it likely that more capital will flow to into US commercial real estate, seeking a safe home. The EU may possibly get slightly hurt as it pulls back from Iran and as oil prices increase. Fracking has made a huge difference to the US energy costs and gives us a big advantage over the EU. With the tax reform and the economy doing well for at least another two years, the US remains the best place to invest.

The views expressed here are those of the author and not ALM Real Estate Media or its publications.