Reflections on the Woodbridge probe
Financial writers and economists have been concerned that the surge in equity values over the last year cannot be supported. Robert Shiller, Nobel laurate in economics and one of the most perceptive writers on the issue, reports his cyclically adjusted price to earnings ration is at the highest level since the dot-com bust.
At the same time, investors are now the least bullish since he began is survey in 2001. One may ask whether we are about to experience another “Minsky Moment,” in other words, a sharp decline in asset values.
On this occasion Aspen could precipitate the event. The Aspen Daily News and The Aspen Times both covered the SEC investigation of the Woodbridge group. The firm apparently owns 151 properties in the Roaring Fork Valley that are for sale. While the firm denies it has violated SEC rules, news of the investigation could be sufficient to freeze all activity in Roaring Fork real estate.
Who, for example, will be willing to buy a property in Aspen Glen if SEC action might force the 29 properties in the area to be dumped on the market at one time? What bank would step forward and write a mortgage on the properties? The same is true for River Valley Ranch where the company owns 55 properties.
More worrisome is the fact that the properties have all been acquired since 2014, according to The Aspen Times article.
The thousands of articles that have been written on financial collapses often highlight the collapse of a hidden, unknown firm or organization such as Woodbridge as a precipitating event. In the global scheme of things, Woodbridge is small. But Milton Freedman once wrote in his great book “A Monetary History of the United States,” “Because no great strength would be required to hold back the rock that starts a landslide, it does not follow that the landslide will not be of major proportions.”
The owners of Woodbridge need to demonstrate publicly to the residents of the valley that they have the financial strength to carry their inventory of properties and can dispose of them in an orderly fashion or, better yet, fill them.