Dear friends,
The belief that the spirit of any given era is reflected in the songs that get released and make it to the Top 10 charts is something that you have probably sensed yourselves or have heard it from others. When the times are good songs tend to reflect that in their joyful lyrics and style; when the times are bad the lyrics will become more ominous and darker, and so will the music. An example of that link between contemporary atmosphere and music is a certain song called “Wind of Change” by The Scorpions.
The Scorpions were a German rock band from the 1960s. They were quite popular in the 1980s in Europe and the United States. Their biggest commercial success came in 1990 with the release of “Wind of Change”. Essentially it was a ballad celebrating the fall of the Berlin Wall and the wave of political liberalism that swept through Europe, and particularly Eastern Europe, in the late 1980s. It topped the singles charts and ended as one of the best-selling songs of all time. Its music video, containing footage from the Cold War, is one of the most-watched songs on Youtube.
The song captured so well the zeitgeist of the era that it eventually became the unofficial anthem for the end of the Cold War. Such was its success that there is even a conspiracy theory according to which it was the CIA that wrote the lyrics, as a tool to help end the Cold War. Regardless of whether you think that it was written by a German metalhead in Hanover or a CIA agent in Virginia, one thing is certain. The song was successful because it captured in real-time the change which was happening in the world. You would ask now, this happened 30 years ago so who cares? And what does it have to do with Spanish Real Estate?
At Artemis Assets we think that this is a great example for investors. Just as The Scorpions had a lot of success by understanding change as it was happening, so can investors. What is the big change we are talking about? Inflation and interest rates. It is clear by now to everyone that inflation levels are going to stay higher than they had been in the decade of the 2010’s. The same applies for interest rates, so the days of 0% inflation and 0% interest rates are long gone. With inflation likely to hover along a 4-6% range in developed countries, investors need to make their money work hard. Leaving your cash in a bank account that yields 2-3% savings interest is a loss-making investment decision.
Further, today you can get more than 4% in U.S. Treasury bills. The implications for asset allocation are huge. Real Estate investments stand to benefit from that sea-change. We have previously explained why property has a double benefit during periods of higher inflation. The property value goes up at least at the same rate as inflation, but also the rental income goes up at the same rate (provided you are not locked in in super-lengthy tenancies). In fact, an investor can benefit by buying an investment property and renting it out on short- and mid-term tenancies, while renting another property for themselves to live in and locking in a long-term tenancy contract.
Reach out to us if you recognize that the world has changed. As The Scorpions put it: “The future’s in the air, I can feel it everywhere/Blowing with the wind of change”. Can you feel it? Can you make money out of it?
Until the next one!
