When This Rate Goes Down, You’ll See the Economy Go Up

By Nick Rokke, analyst, The Palm Beach Daily

DETROIT—“Protection is the platform for profit.”

Right now, I’m in Detroit continuing my conversation with Dale Brown. He’s the founder of private security company Detroit Threat Management.

For the past couple of days, Dale has been my tour guide. And he’s been showing me signs of Motown’s economic renaissance.

And a major driver of the city’s recovery has been safety.

I’m in Detroit continuing my Rust Belt Tour to see whether President Trump’s “America First” policies are having an effect on the economy.

You see, you can have the most pro-business policy ever and it won’t make any difference if there isn’t any safety.

“Politicians don’t provide prosperity,” Dale said. “They don’t create the safety. Protection is the platform for profit.”

Dale knows this firsthand.

One of his first clients was a $250 million cigarette distribution company. The company had plenty of business but was on the verge of bankruptcy.

That’s because the Detroit mafia was hijacking its delivery trucks. In one two-week span, thugs robbed three shipments worth $1 million each.

The company hired Dale’s security firm about 20 years ago. Since then, not one shipment has been lost.

Now the company has grown and pays its owners and employees very well. That’s all because the business got safer.

The mainstream media outlets will have you believe that everyone is struggling and the economy is about to crash.

That’s not what I’m seeing. I’m seeing companies—like Detroit Threat Management, AK Steel in Ohio, Sully’s Bar & Grill in Indiana, and Morgan Dempsey in Wisconsin—thriving.

During this trip, I’m pulling back the curtain to show you what’s really going on. I’m not going to repeat the doom and gloom the news media pumps so you keep watching their commercials. I’m going to tell you the truth.

And the truth is that there is an industrial renaissance underway. If you’ve been sitting on the sidelines because of doom and gloom, now is the time to get into the market.

Urban Renewal

During the recession of 2008, Detroit was particularly hard-hit as the auto industry collapsed. Like many other industries, many of those jobs were sent to countries with cheaper labor costs, like Mexico.

That left thousands of Detroit residents jobless. And with fewer workers, the city’s tax coffers decreased.

The city’s police force was in decline and criminals exploited the opportunity.

According to City-Data.com, Detroit’s crime rate peaked in 2006. In that year, there were 28,500 robberies and burglaries. By 2015, that number was cut to 18,000.

Not coincidentally, the Detroit resurgence began as the crime rate decreased. For example, in 2010, Quicken Loans owner Dan Gilbert moved his company’s headquarters downtown. He brought over 1,000 jobs to the city.

Many companies followed, bringing thousands more new jobs to the urban center.

Safer Neighborhoods, Too

Detroit doesn’t have rich and poor areas. It has safe and unsafe areas. In fact, safe, well-off neighborhoods in the city have become unsafe and poor.

That’s what happened in two of Detroit’s wealthier neighborhoods: Palmer Woods and Sherwood Forest.

These are nice neighborhoods with affluent people. Palmer Woods is the home of a former archbishop.

At first, these communities were insulated from the urban blight surrounding them. But as the economy collapsed, criminals started targeting the areas and they became unsafe.

People tried selling their homes, but couldn’t. Eventually, some gave up and vacated them.

Dale’s company started patrolling these neighborhoods in 2010. At the time, Palmer Woods had 33 vacant houses. Since then, crime in the neighborhood fell by 90%. People started coming back.

Today, there are only two vacant homes in Palmer Woods, and real estate prices in the neighborhood have doubled. The rest of Detroit is up by only 33%.

What Crime Rates Tell Us

Before I visited Detroit, I thought crime was up in these neighborhoods because of poverty.

In my mind, if the economy was getting better, there’d be less crime. If more people could get jobs, they wouldn’t need to resort to crime.

But Dale quickly schooled me on this point. He pointed out that crime isn’t a matter of need or poverty. It’s a matter of opportunity. And the stats back him up.

As I mentioned earlier, crime in Detroit peaked in 2006. That was two years before the recession. The U.S. economy was strong at that time.

Here’s the key takeaway…

Don’t just look at poverty numbers to determine the health of a community. That’s a backward-looking indicator. It tells where the economy has been, not where it’s going.

A more forward-looking indicator of the future health of an economy is crime rates.

If you can determine where crime rates are going down, chances are you’ll find an area ripe for investment.

You can find local crime statistics on real estate website Trulia or City-Data.com and national crime statistics in the World Data Atlas.

Whether you’re looking to buy local real estate, start a business, or buy a country index fund, researching crime stats will help you put investments in the right place.

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. If I were a Detroit developer, I’d buy some of the vacated blocks near the neighborhoods Dale’s company patrols. Then I’d build mini urban centers and hire his company to patrol them. The area would thrive, and the investment would skyrocket.

MARKET BRIEFS

Hedging Their Bets on Cryptos: Hedge fund clients include wealthy investors and large institutions. They can pretty much invest in what they want, including real estate, stocks, and debt. A recent report from Hedge Fund Research (HFR) finds that most hedge funds have underperformed the market so far this year. However, the best-performing hedge fund index in May was the HFRI Macro Currency Index. In addition to holding fiat currencies, HFRI also holds cryptocurrencies such as bitcoin. HFR says hedge funds that focused on technology and cryptocurrencies did the best.

As bitcoin continues to outperform other asset classes, more hedge fund managers may start following their peers and investing in the digital currency. Of course, this wouldn’t come as a surprise to regular Daily readers. We already told you that hedge funds are planning to move capital into bitcoin, and that could drive its price to $10,000 or more.

Pension Ponzi Schemes: The man who exposed the Bernie Madoff Ponzi scheme has uncovered a new fraud. Harry Markopolos is a former securities industry executive and independent financial investigator. In the early 2000s, he alerted the U.S. Securities and Exchange Commission (SEC) to Madoff’s fraud. Today, he’s exposing another Ponzi scheme. This time, it’s the Massachusetts Bay Transportation Authority (MBTA) pension fund.

Markopolos says the unfunded status of the fund is $500 million bigger than officials have previously stated. He adds that much of that gap is due to bad investments, fraudulent accounting, and unrealistic assumptions. The MBTA is just the latest example of troubled pension funds. If you are a member of a pension plan, here are three things you need to start doing today to see if your fund is safe

Energy Stocks Are Fueling Up: Energy stocks have been beaten to a pulp. The Energy Select Sector SPDR ETF (XLE) is down 13% this year. That makes energy stocks the worst-performing sector in the S&P 500. Furthermore, energy stocks have been lagging the broad market for nearly a decade. But situations like this don’t last forever… Our friends over at Casey Research say the pendulum is about to swing the other way. And when it does, energy stocks will skyrocket.

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IN CASE YOU MISSED IT…

New research says your cellphone could kill you… (And it has nothing to do with radiation or cancer.)

Find out what you need to know to protect yourself from this “cellphone” disease—including details on a potential miracle cure—right here.

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