- The best way to profit from a continued homebuilding boom
- Hedge funds make a losing bet on oil (They weren’t following Rickards)
- Canada election results move two major sectors
- Australia’s new currency?… the luck versus hard work debate, continued… millennials hit back at boomers… and more!
Give the Federal Reserve its due: It’s kinda sorta propped up the housing market.
Surely, that’s the takeaway from this morning’s report on housing starts from the Commerce Department. New construction grew 6.5% in September. It’s a continuation of a trend going back four years…
True, much of that growth comes from the “multifamily” category. With the ranks of homeowners shrinking and renters growing, builders can’t put up new apartment complexes fast enough. But even the single-family category grew a bit.
The report also includes figures on building permits — a better indicator of future activity. Here the number is down 5% in the last month. Still, the numbers are volatile, and in all likelihood, the pace of construction is merely slowing, not suddenly reversing.
And as noted here yesterday, confidence among homebuilders is the strongest now since the bubbly days of 2005.
“A perfect environment for homebuilder stocks,” is how our income specialist Zach Scheidt describes current conditions.
“Interest rates are at historic lows, and they’re set to stay that way. It looks as if the Fed will keep target rates at a very low level for a long time to come. The 30-year mortgage rate has fallen back below 4%, after briefly trading higher this summer.
“At the same time, rental rates in the U.S. have been steadily climbing. This is because the financial crisis put many builders out of business and made it harder for the remaining home construction companies to get loans to start new housing projects. With fewer homes available to buy, demand for rental units has steadily increased, driving prices higher.”
Zach’s premium subscribers had a chance to collect an instant $195 income payment last month… and another $310 payout… both on the strength of the housing market. It’s all part of his “retirement loophole” strategy.
Our publisher’s challenge is still on: Try the strategy just once and if you manage to lose money, we’ll write you a check to cover the loss. Details about this one-of-a-kind guarantee right here.
The major U.S. stock indexes are in the green today, adding to yesterday’s gains. The S&P 500 sits at 2,038 — now less than 5% below its record close last May.
Gold is rebounding, the bid back to $1,178. Crude is likewise recovering a bit at $46.29.
“A lot of hot money chased into what we believe are insolvent companies at best,” hedge fund manager Paul Twitchell tells The Wall Street Journal.
Mr. Twitchell is among the hedgies who did not get burned on what was supposed to be the trade of the year.
As a group, hedge funds are on track for their worst year since 2008. A chief reason: “During oil’s deep decline in 2014,” says the Journal’s front-page story, “many firms including private-equity firm Carlyle Group LP had their eyes on an energy trade they hoped would be a layup, especially in an era of low interest rates: They could lend to and invest in cash-strapped energy companies, and book a profit when the market returned to its historical norms.”
That return to historical norms hasn’t materialized. And as Jim Rickards forecast here last week, Saudi Arabia has the means and the motive to keep oil in a range of, give or take, $50-60 a barrel through 2017, wrecking U.S. frackers — or in the Journal’s parlance, “cash-strapped energy companies.”
“Meanwhile, the market for junk-rated energy debt has dried up,” the Journal story continues. The volume of bonds issued by U.S. energy firms has tumbled to its lowest level since 2011.
Little wonder: As Jim Rickards explained back in January, those firms are already sitting on $5 trillion in debt, much of it issued on the assumption oil would stay between $80-110 forever. No way can it be repaid or rolled over when it comes due, some of it starting next year.
Jim thinks a default rate of 10% is a conservative estimate. Combine that $5 trillion in energy debt with another $9 trillion in dollar-denominated debt issued by companies in emerging markets and we’re looking at a corporate debt debacle six times larger than the subprime losses that began in 2007.
[Ed. note: It’s fascinating watching things Jim forecast nine months ago turning into front-page news now.
Of course, the time to capitalize is before his forecasts become headlines. A select group of readers has done that all year, trying out our newest Jim Rickards trading service. They’ve bagged gains including 41% in three months… 102% in four months… 150% in less than a month… and 162% in under six months.
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The Canadian election results are moving stocks in the energy and defense sectors — both followed closely by our Byron King.
The Liberal Party has won a majority in Parliament, ending nearly a decade of Conservative rule. The incoming prime minister is Justin Trudeau — the heartthrob son of Pierre Trudeau, who held the job for most of the ’70s and early ’80s.
Younger-looking than his 43 years, which his opponents tried and failed to capitalize on…
[Photo by Flickr user Alex Guibord]
With low oil prices, Canada’s energy industry is in a world of hurt and the economy is in a recession. Trudeau, like his predecessor, Stephen Harper, supports the Keystone XL pipeline extension from Alberta’s oil sands to the U.S. Great Plains. Whether Trudeau will be more successful getting the White House on board remains to be seen… but Keystone operator TransCanada (TRP) is up 1.5% this morning.
On the other hand, defense contractor Lockheed Martin (LMT) is down 1.5% despite issuing a decent earnings report before the open. That’s because Trudeau wants to junk existing plans to buy 65 of Lockheed’s F-35 fighter jets.
Byron’s on alert for potential fallout: “Losing a key buyer for U.S. foreign military sales might give other nations ideas about the F-35 too,” he says via email this morning, “and it’s those foreign sales that are expected to lower the unit and production costs by increasing volume. Plus, wait until Canada opens up next-generation fighter procurement to European contractors…”
The energy/commodity slump has hurt Australia, too — enough that some people want to change the name of the currency to a 20-year old Simpsons reference.
A petition at change.org calls for renaming the Australian dollar to the dollarydoo.
“This will make millions of people around the world want to get their hands on some Australian currency due to the real-life Simpsons reference, driving up the value of the Australian currency,” says Thomas Probst, who launched the campaign six days ago and has already garnered nearly 58,000 signatures.
Alrighty, then…
The term originated in a 1995 Simpsons episode, “Bart vs. Australia” — the one in which Bart places a collect call to an Australian home to ask which way the water spins as it drains out of the sink. Upon seeing the bill, the homeowner exclaims, “Nine hundred dollarydoos!”
Someone at MarketWatch, taking the story waaaay too seriously, writes, “The petition is clearly a novelty, but what’s interesting is that the economic argument on which it is based — that a stronger currency would boost growth — is the opposite of how central bankers go about attempting to stimulate an economy via exchange rates.”
Which is true — that’s the thesis behind Jim Rickards’ first book, Currency Wars — but c’mon guys, lighten up!
“Mild success can be explainable by skills and labor. Wild success is attributable to variance,” wrote Nassim Taleb — a quotation a reader cites to launch today’s mailbag. Our luck versus hard work debate isn’t over yet.
“What Taleb says is probably true for failure also,” our reader writes. “I should know. I am a boomer (1947) who in the late’70s made a chunk of money in a startup where I was chief engineer and had some stock and stock options. Subsequently, I started my own company, which over the course of many grueling 60-hour weeks, spread over many years, gradually impoverished me.
“Was I dumb or just unlucky to be so unsuccessful? Probably a fair amount of both. All said, it’s useful to remember a sobering truth: For every startup that is successful, many fail. Those businesses that fail are often started by people with the same capabilities and good energy as those who started successful companies.
“All entrepreneurs, every day, have the opportunity to make good, bad and ugly business decisions… and, in the course of time, will likely make a fair number of each. Lady Luck will then, often well after the fact, determine who the winners and the losers are.”
Meanwhile, we’re now hearing from the millennial generation. As our debate was getting underway in earnest last week, we suggested the boomers had certain advantages denied to Xers and millennials — like escaping crushing student loan debt.
“I’m sure a millennial’s point of view is probably not common in the newsletter industry dominated by retirees/the near-retired crowd,” writes a younger reader. “Regardless, let’s start the debate.
“It is my belief that the boomers are the root cause of all the problems. They have stood by and watched as America declined. As you pointed out. They have raised the supposedly worthless generation of millennials. Do ‘you all’ remember being lumped together as worthless hippies and how ‘you’ were the end of the U.S.? Oh, how the times have changed (or maybe they were right?).
“No real wage growth, failed international policies/wars and a debt that ancient Athens would be proud of. Maybe boomers should look in the mirror and see the fantastic world that ‘we’ millennials have inherited and say sorry rather than complain about ‘us.’”
The 5: Your early-wave Gen-X editor is going to steer clear of the finger-pointing here. Although, speaking of looking in the mirror, I’ve always enjoyed the cover of National Lampoon’s 10th Anniversary Anthology, which came out in 1980…
“The boomers left the millennials with record amounts of debt despite no great war,” writes another millennial reader. “Record entitlements that only work with insanely low interest rates and an increasing share of worker income.
“Those low interest rates have made all real assets far more expensive, making the accumulation of real wealth (not just dollar bills) also next to impossible for the millennials. Boomers are wealthy on paper with big home prices and stock prices that will never be fully monetized because the millennials don’t have enough money to buy it from them. That has nothing to do with how we were raised. It has to do with one generation using regulatory capture to screw the other.”
The 5: Zing!
Best regards,
Dave Gonigam
The 5 Min. Forecast
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“Especially you. Why? Because this service was designed specifically for YOU. This is absolutely for regular investors with an average understanding of the markets who want and NEED to create more income because (due to the Federal Reserve) there are so few risk-averse income investments available today.”
And as we said, the guarantee can’t be beat. Details here.
