Happy Independence Day!

Jul 2023

“A government big enough to give you everything you want is a government strong enough to take everything you have.”
– Thomas Jefferson

Hey, happy Independence Day! Hope you have a memorable day planned. July 4 is one of my favorite holidays to re-review history and remember the truly unusual set of minds and circumstances that allowed the United States to become the greatest democracy in history. Pretty amazing – and I’m super thankful that we are the benefactors of that unique history. But we’re not here for a history lesson so I’ll try to make this brief since I’m sure you have more interesting things to do with your day!

I did promise to dig into all things AI today, but I feel like that requires a little more focus and a “non-holiday” week. So for this week, we’ll discuss SEC rules that would allow a greater number of folks to qualify as accredited, jobs numbers that may be over-inflated, and some nice-looking renovations in San Antonio! Let’s get started…

SEC Rules Changing

On May 31, 2023, the House passed the Equal Opportunity for All Investors Act of 2023, which aims to increase investment opportunities for individuals regardless of their income or wealth level. This bill shares the same name as a previous bill that was not successful in passing the House back in 2021 (H.R. 2797). As of June 1, 2023, the bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Historically, to be considered an accredited investor under the Securities Act of 1933, an individual had to meet certain financial requirements, such as having a net worth of at least $1 million or an annual income of $200,000 (individually) or $300,000 (jointly with a spouse). The SEC expanded this definition in 2020 to include individuals with certain professional certifications, employment experiences, or relationships. However, a significant portion of the population is still excluded from certain investment opportunities, such as direct real estate investment.

The Equal Opportunity for All Investors Act of 2023 directs the SEC to establish an exam that individuals who don’t meet the financial criteria can take to become certified as accredited investors. The exam would test an individual’s understanding of investing in unregistered securities, private companies, or private funds and would be designed to an appropriate level of difficulty. If enacted, the SEC would have 180 days to establish the exam, and FINRA would offer it to the public free of charge within the next 180 days.

The bill’s passing would provide an alternative pathway for individuals to achieve accredited investor status and open up investment opportunities to a broader population, promoting greater accessibility and inclusivity in the investment industry.

Job Market Data Not Accurate

Is the US labor market truly as robust as the headlines proclaim? Well, when we take a closer look at real lives, economists find themselves puzzled by whether the latest employment report accurately reflects the strength of the job market or if certain adjustments are skewing the data. Despite hearing for months that the US economy is not in a recession due to a strong job market and low unemployment, the reality may be more complex than that. The commonly cited unemployment rate, below 5%, is used to paint a positive financial outlook. However, the government’s annual benchmarking process, along with updates to seasonal adjustment factors and population controls, has complicated the employment report. Economists warned before its release that interpreting the data may prove challenging.

The headline unemployment figure does more than just oversimplify the situation. It distorts the true extent of economic hardship, leading to a misleading assessment of the economy’s health. Some economists argue that the payroll data is not aligned with other indicators that suggest a much weaker economy. While economists typically consider the payroll survey as the most accurate and comprehensive representation of the job market, a few experts highlight blind spots that may result in an overcounting of jobs. This overstatement could potentially reach hundreds of thousands of jobs per month, concealing the impact of the Federal Reserve’s tightening on employment.

The labor market has undergone significant transformations in recent decades. However, the government continues to rely on an outdated definition of unemployment dating back to the Great Depression. The criteria used to determine who is considered “working” or “not working” are based on a narrow understanding of employment from the 1930s, where individuals were either employed in factories, technical or educational jobs, or not employed at all. This outdated approach fails to account for the changing nature of work, with 36% of the labor force now comprised of independent workers such as contractors, freelancers, temporary workers, or individuals with side hustles. These independent workers often fall outside traditional labor metrics and are therefore often underreported and understudied. This is particularly concerning for vulnerable groups like immigrants, with nearly half of them being classified as independent workers. It is crucial that we recognize these shifts and update our metrics accordingly to gain a more accurate understanding of the labor market.

Bottom line – I’m hopeful the Fed takes this into consideration when assessing how far to go with interest rate hikes. We’re already pushing too far.

Onsite Focus – Villa Nueva

Last week I stopped by our recent acquisition in San Antonio, rebranded as Villa Nueva, to see how things were going. We’ve begun the process of renovating units, improving our resident demograhic, and starting some badly needed exterior capex. Our team had the place looking great – parking lots were clean, landscaping was trimmed, overall curb appeal is way up – and they were cranking along with leasing and renovations. They completed a couple of renovations in the recent couple of days and had the units leased within 48 hours! Nice work!

Our next big step is replacing a lot of the dirt and gravel around the complex with new sod. But before we could do that we had to get a thorough tree trimming throughout so that the grass could get enough sunlight to survive. Simple things make a big difference!

Villa is only about 6 months into our value-add business plan but it’s making solid progress already. Our biggest focus right now is bumping up leasing volume to accommodate the evictions we had to take care of after our acquisition.

That’s all for now! Hope you’ll have a wonderful Independence Day!

Thanks for reading and have a great week!