Forbes Magazine reported this month that the richest in this earth had grow their wealth by 10% last year alone. MSNBC reports that CEOs pay is at the highest ever, versus employees has lost ground at a rate of 1% year and pensions for mayor corporations are unfunded and the same managers of these pensions paid themselves handsomely to a ration of 4000 times their average employee salary. Forbes also reports, as an average, to make to the top 500 wealthiest in this our planet, a person needs to be near one thousand times millionaire. To put this in contest, the top 500 wealth accumulators have as a whole more than 99.5 % of all countries, they all bunched up and live in a single country they will be second to the US economy. All this, while poverty is at its highest ever in the number of people affected and wealth distribution is at its lowest. Laws continue to be enacted by the elite to continue their trip to who knows where.
That stated, let’s see if I can make some sense in talking money. Since I started to talk about oil a few years back and I did a kamikaze move by buying more than 60 % of my portfolio in natural gas and oil related Canadians trusts, I felt as I bought it all, last month I sold it all. My reason is simple, like always I sell early, and I follow the rule of the taxi driver.
When a taxi driver tells me it is time to get into anything in the stock market.
If I own what he is talking about, in this case oil, like I did, I will sell it, and if I do not own it I will stay at the sides and in a prudent way, short the commodity. So I am staying with a large cash position, until a clear pattern starts to develop. My first impression after one month in cash is that there is a repositioning of capital into large caps that are being hammered, and growth funds are also getting influx of money. I will suggest look for battered big caps with positive cash flows and growth of sales above average. As of yet, there is not a clear trend, but when allocations of funds start to take people in one direction, that trend becomes over a short period of one year or so the prevalent over priced area. The early the trend can be bought the easier is to capitalize on the price appreciation. We are too many darn people buying the same things so eventually the mass over weights rationality and we return to our mean value and senses. The theory of many says when many act in one direction the majority will follow the mean trend of that direction. When people vote with their dollars the argument is that because the size of the pool is so large the extension of the price paid at the transaction will eventually outpace the actual value. Some might say it is supply and demand, the problem is that, the supply can be altered in a matter of days and demand can become irrational in matter of years.
The other bubble people are talking about is real estate, it is well funded to some extend.
By the other hand it is the result of capital risk value. The risk involved in getting into investing in real estate is being compensated like other rational investment. Thus commanding comparable and fair market value returns.
At a macro level, the price of money drives the financing and pricing of housing, that is clear for all of us novices.
Plus, housing due to global migration and global investing is getting affected by global pricing of commodities and global flow of money.
As an example Manhattan market sales of top priced properties – two million or more dollars- are in pace to be above 50% for its fourth year purchased by foreign owners.
The rational behind is the simple item mentioned above: the cost of money.
The EU right now has interest rates far below the US, thus folks with access to capital can borrow at discount and their currency. The Euro has outpaced the dollar for the third year in the row to a revaluation of more than 40%. Thus, affecting the global capital market, top market buyers are attracted to the US, as a direct investment. In the debt area, because the interest rates are higher here and the majority of median priced houses are sold to the local market, the mortgage debt generated is been sold in the international market. A very sound strategy, that can back fired if not well timed.
Three years ago you could take $1 dollar and buy 1.35 of goods in the EU. Today, the reverse $1 occurs $1 dollar buys $0.85 cents of Euro and the cost of money is higher in the US than it is there, making a lot of sense to bring euros into dollars. Specially invest in bricks and mortar in our very mobile market. This is not limited to Europeans buying it is global reaction. Thousands of brokers are selling US houses or villas -how they are marketed in EU- to anchor US real estate sales.
Some market as Chief Alan said are overextended, this does not mean they will collapse. We should expect some decline or stagnation in pricing in those over priced areas, but do not expect bargain prices, and if for one reason occur they will not be that way for too long. The first of trouble will be to tabulate the number of listed properties at the HUD web site www.hud.gov. If the number of houses in the area you are interest starts to increase and the time of sales increases, there you have a declining market. With the national average sale at $216,000 per unit, as an investor you will do OK if you can start with that number and bring it down 20% to 30% and if sales occur at those levels, it is time to jump. Now, timing is of consequence, so do not rush into it, but do not overanalyze waiting for Godot.
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