The Permanence of the Real

The Chinese love to buy art, jade, jewelry, real estate. They prefer, to a much greater degree than Westerners, to put a substantial portion of their wealth in THINGS. Increasingly, as I watch the wild fluctuations of our national stock markets and those around the globe, and I listen to my colleagues, my customers, and my clients talk about the vertiginous swings in their securities portfolios, I sympathize with the Chinese. There is much that is appealing about owning stuff, real stuff, which you can touch and hold and feel.

Everyone has an opinion about the economy, and these opinions run the gamut (and there seems to be an economist endorsing every position from one end of the spectrum to the other). But a few things seem clear, at least to me: our economy cannot really recover without a concurrent recovery or re-balancing of the European economy, and the European economy has a long way to go before it can really begin to recover. The critical financial issues in Greece and Spain, not to mention those looming for Italy and Ireland, took years to create and may well take years to sort out. In the meantime, markets the world over behave like roller coasters. And I suspect that this is the new normal, that for at least another year these daily vacillations of hundreds of points embody the global uncertainties which cannot be wished away. It’s fear, it’s here, get used to it (to paraphrase Act Up!)

In this environment, the appeal of the real has never seemed greater. Real estate is so…concrete. As Mark Twain famously said about land, they are not making it any more. Real estate is satisfying to own, it cannot be wiped out by market forces like your shares in Lehman or MF Global, and Bernie Madoff cannot fool you about whether or not you actually possess it. There it is. The same is true of an Andy Warhol painting, or a vintage piece of Van Cleef invisibly set ruby jewelry, or a jade cup.  They have the ability to give their owner great pleasure, and in the meantime they aren’t going anywhere.

It has been an interesting fact of our year at Warburg that most of our really big deals have been done with buyers who are NOT in the finance industry. The majority of our buyers for major properties this year have been in real estate. They have steady cash flow, which is appealing to Boards, and unlike their stocks their properties are not being re-valued every day. Americans of the 20th and 21st centuries have been so attached to liquidity that money has become an end in itself. But money is just a metaphor, an abstraction, a stand in for a service or value provided which can then be bartered for something else. And then most of us are invested in the stock market, a further abstraction, where money is transformed into a bet on the future of this company or that company. But these days the smartest clients also feel the lure of the real, and they are buying tangibles as a hedge against their stock positions (which in the current interest rate environment return almost nothing anyway.) So in this regard I agree with the Chinese.  Buy land, or condos, or art, or antiques. Don’t underestimate the investment potential, pride of ownership, and talismanic power of real stuff.