A reality check on recent “good” news.

Human optimism has driven civilization to extremely challenging locations.

We humans are optimistic by nature. How else would civilization have spread to areas as extreme as the arctic north or the vast deserts of North Africa? Our optimism is in full force almost daily now as reporters and political figures claim recovery is here because fewer people are losing their jobs this month than last month. The billions in equity injections and commercial bridge loans by the government have so far only created a little friction in the fall. To be sure the situation has improved: inventories have been greatly reduced, housing price declines have more or less stabilized, and the all-important consumer seems to be more confident than before. And let’s not forget the eye-popping stock rally that’s come on the heels of all this “good news.” But before we break out the bubbly let’s be honest with ourselves.

In May the U.S. economy lost 345,000 jobs. That is well under the 504,000 jobs lost in April, but still not exactly something to celebrate. Imagine your personal investment manager came to you and said “Good news, I only lost 15% of your wealth this month, that’s less than the 25% of your money I lost last month. I’m doing much better.” I’ll guess the majority of us would not be overjoyed with that report. But somehow we’ve convinced ourselves less bad news is the same as good news. Human optimism at its best.

Unemployment continues to rise. Actual rates likely much higher than gov’t reports.

The fact is businesses are still shedding jobs; real estate prices are still falling; credit markets are still seriously locked up; GM, an icon of American industrialism, is in bankruptcy; and the federal government (as well as many state and local governments) are running major deficits. Some of the greatest optimists tend to be real estate professionals, most of whom have been calling the bottom of the market since before the market implosion of September 2008. As I previously outlined in Road to Recovery there is likely a lot more pain coming for the commercial real estate sector, albeit less so than the housing crash.

Commercial real estate will be somewhat protected since the industry has done a much better job this past decade of not over building. Nevertheless, with the economy in the doldrums and job growth not likely to return for a long time (perhaps a couple years) occupancy rates are going to remain under pressure and so will prices.

Our economy is tremendously resilient and we will recover from this mess, but let’s be realistic what that recovery looks like and how long it will take. For investors that do an honest assessment and take a patient approach the road to riches lay ahead. For those that don’t, the fate of sisyphus is a more likely outcome.