December 9, 2013
- Is the easy money already made? Chris Mayer on the housing recovery
- After Mandela: Byron King’s reflections after six trips in five years to South Africa
- Dollar’s death by a thousand cuts: Two new moves by China
- Fighting terrorism by infiltrating World of Warcraft?!
- A special kind of dollar the Chinese still want… a surefire indicator that gold stocks are reversing (tongue firmly in cheek)… an obsession with Obamacare trivia… and more!
“There are limits to how far the housing market can recover,” says our Chris Mayer.
If you’ve been with us for a while, you know Chris spotted the housing market recovery right as it began in 2011-12.
He said the best way to play it was to buy rental properties; your rental income would almost surely cover your costs and deliver a handsome profit. “I did it myself, and it has worked out very well so far.”
But now? Average home prices have appreciated 14% since the start of 2012, according to the Case-Shiller home price index. “There are still those opportunities in pockets,” says Chris, “but from a high level, I think the easiest and juiciest pickings are gone.”
“Prices alone are only half of the story,” says Chris, scoping out the reasons.
“You have to compare prices to something else, like median income. This is part of a basic affordability question. When the housing bubble peaked, the median price to median household income number got all out of whack.
“Since median household income has been stagnant for a long time, the recent jump in housing prices has already pushed this ratio to a level we haven’t seen since the last housing bubble began to inflate.
“Here,” Chris explains, “you can see more clearly the danger as the housing bubble inflated… and the opportunity the bust presented afterward. That easy, fall-out-of-bed-and-make-money opportunity is gone.”
Nor is it likely to come back when you consider median household income is less than it was 10 years ago.
“The opportunity to buy U.S. housing cheap still exists, of course, but as with everything else these days, you have to pick your spots.”
Whatever you do, steer clear of the single-family housing REITs.
REITs, as you likely know, are real estate investment trusts. They own real estate and pay out most of their earnings as dividends. A new breed of REIT buys up single-family homes and rents them out. Chris has been skeptical ever since the first one — Silver Bay Realty Trust (SBY) — began trading at this time last year.
Chris is joined in his skepticism by the septuagenarian real estate mogul Sam Zell. “I just don’t understand how it’s going to work,” he says. Zell’s apartment REIT, Equity Residential, doesn’t own a single property that it owned when it went public 20 years ago.
“If a house REIT did that, what would they own then? Nothing. In other words, this was a place in time, a single opportunity. I don’t know if they did great or they didn’t, but it’s a trade, not a business.
“What Zell is saying applies to all investors in housing,” Chris sums up. “It was a great opportunity, but it is not likely to repeat.”
[Ed. Note: As you may know, Chris is likewise finding few bargains in the stock market these days. Which is one reason he’s turned his attention to a unique kind of stock — an opportunity closed to investors 11 years ago, open once again. You can buy it in your online brokerage account… but the returns are often 300-500% greater than traditional stocks, and you actually take on less risk. For access to this unique make-money-while-you-sleep idea, look here.]
Stocks are off to a sleepy start this week; after Friday’s big run-up, none of the major indexes are showing much direction as we write this morning.
No fewer than three Federal Reserve governors deliver speeches this afternoon, so taper-minded traders might cause a blip or two before the close…
Gold sits about where it did at this time on Friday, $1,235.
“Mandela stood up and took control of a social volcano that threatened to destroy an entire nation,” says our Byron King. “He tamed Vulcan.”
Byron has ventured to South Africa six times in the last five years to scout out investment possibilities. One of his more memorable experiences was aboard a Delta flight from New York to Cape Town, with a stopover in Dakar, Senegal.
As land became visible, the pilot announced, “Welcome to South Africa, everyone.”
“The aircraft erupted in spontaneous applause,” he recalls. Thunderous applause. “There was a feeling of utter joy coming from several hundred souls onboard. I quickly figured out that most of my fellow passengers were South Africans — of many races and ethnicities — and they were very, very happy to be home.
“A group of total strangers on an airplane sang in unison, and even carried a collective tune. I’ve NEVER heard passengers erupt in spontaneous song, singing a national anthem… except for that time in Cape Town. Without naming Mandela in the national anthem, South Africans sing songs to his accomplishments. It’s a hopeful sign.”
“By the late 1980s and early 1990s,” Byron jogs the memory, “South Africa was ready to blow. It could have gone ugly in a hurry, in a big way.
“Then in 1990, Nelson Mandela walked out of prison on Robben Island, offshore Cape Town.
“Mandela went on to deal with the South African regime such that it backed away from its authoritarian scale of power. Mandela helped write a constitution that enabled and empowered all South African people with basic political rights while protecting minorities and establishing an independent judiciary.” Only four years after his release from prison, he was elected the nation’s first post-apartheid president.
“Today, South Africa has problems, to be sure,” Byron goes on. “You name the problem, South Africa suffers from it — population, immigration, education, squalor, disease, sprawl, economic development, resource depletion, energy supply, water, pollution and more.
“Yet for all of South Africa’s issues, I truly believe the place is far better for having had Nelson Mandela as a leader and figurehead. Mandela took a profoundly troubled country that was on the verge of calamity and through gifted leadership dragged it back from the brink.
“What of South Africa without Mandela? In recent years, despite age and ailments, his presence was moral glue that kept a lot of things together and many a train on the rails. Now that Mandela has passed on, how will things change? It’s an open question.” But after recalling that flight to Cape Town, he concludes, “There’s hope for a place like that.”
China has taken another baby step in its long-term plan to unseat the dollar as the world’s reserve currency: The central bank is loosening its grip on interest rates.
Starting today, banks are allowed to trade deposits with each other at an interest rate set by the market. Up to now, those rates had been capped.
We’ve seen a steady drop of announcements from China the last three weeks, after the secretive Third Plenum meeting of the Chinese Communist Party’s Central Committee wrapped up. All of them point in the direction of further loosening the yuan’s peg to the dollar… and freeing up the movement of interest rates.
Look for an effort to push ordinary Chinese into gold, too. The World Gold Council forecasts China will ease access to gold exchange-traded funds (ETFs) similar to the SPDR Gold Shares (GLD) in the U.S.
“There’s so much room to grow,” the council’s Roger Liu tells The Wall Street Journal, “and I expect more [exchange-traded fund] products along the lines of SPDR Trust to pop up in China.”
As it is, China is set to surpass India as the world’s leading gold consumer this year; purchases of jewelry, bars and coins could reach 1,000 metric tons.
But wait? What’s this? There’s one variety of dollar the Chinese seem to want very much.
Each year, the U.S. Bureau of Engraving and Printing offers $1 “Lucky Money” notes to commemorate Chinese New Year. They’re not commemorative issues; rather, they have a serial number beginning with 8888. “The Treasury will offer 88,888 Year of the Horse $1 notes,” reports the Xinhua news agency. Many Asians consider the number 8 a symbol of good fortune.
“The lucky money product,” says Xinhua, “is designed with decorative Chinese symbolism and packaged in a red folder with gold foil and embossing.”
The issue went on sale last Wednesday… at $5.95 a pop. We see the 2012 Year of the Ox issue is going on eBay for $9.99 right now. Hmmm…
Say this much about the feds’ surveillance apparatus — there’s nothing subtle about it.
Last Thursday, the U.S. National Reconnaissance Office (NRO) launched a top-secret spy satellite from Vandenberg Air Force Base in California. “The NRO,” explains techie website The Register, “is the agency in charge of designing, building, launching and maintaining America’s spy satellites.”
The mission, designated NROL-39, was given its own logo. With apologies to columnist Dave Barry, we swear we are not making this up…
“Looking at the NROL-39 logo,” quips the Russian English-language TV channel RT, “people could be forgiven for mistaking it for a version of the Lovecraftian elder god Cthulhu, who wants to swallow the Earth whole.”
Meanwhile, it appears the NSA felt its surveillance efforts would be incomplete without an effort to infiltrate online games like World of Warcraft.
So we learn from the latest Edward Snowden documents to be vetted by The Guardian: Both the NSA and its British counterpart the GCHQ “have built mass-collection capabilities against the Xbox Live console network, which boasts more than 48 million players. Real-life agents have been deployed into virtual realms, from those Orc hordes in World of Warcraft to the human avatars of Second Life. There were attempts, too, to recruit potential informants from the games’ tech-friendly users.”
Or as the analyst who wrote the 2008 document put it, games “are an opportunity!” The accompanying notes indicate that so many U.S. agents had infiltrated the gaming community that measures were needed to make sure they weren’t spying on each other.
Yeah, but did all this activity actually foil any terrorist plots? The documents are, um, suspiciously silent on that question…
Really, do you need much more convincing that it’s worth a modest investment of time and effort to cover the digital tracks you leave behind? Our step-by-step guide, Make Yourself Invisible to the NSA, is available here.
“I am convinced,” a reader wrote us on Friday, “that today, Dec. 6, 2013, marks the bottom of the precious metals and mining stocks. There should be a powerful move up starting today.
“I know this sounds like hyperbole, but over the decades, I have noticed a timing trigger that is almost perfect down to the day. That’s why I said the powerful new rally will begin Dec. 6, 2013.
“What is this timing trigger, and how can I be so sure a powerful rally is underway?
“I just sold all of my mining shares today.
“Enjoy the powerful rally. You’re welcome!”
The 5: As we write today, stocks and gold have moved little… but the HUI index of major gold stocks is up 1.32%. Hmmm…
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. The media seem to be caught up in Obamacare trivialities. Among the headlines we see this morning…
- Will Obamacare Play Big in 2014? Keep an Eye on NH Senate Race
- Is the Republican Advantage on Obamacare Eroding?
- Sibling Rivalry? Zeke vs. Rahm Emanuel on Obamacare
Really? The system is in the process of turning millions of lives upside down and it’s all about an election that’s still nearly a year away?
You need straight talk and facts about what’s going to change on Jan. 1 of next year… and the three-word loophole that can free you from the worst effects. Here’s where to find both.