Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Saturday, February 14, 2009

Where is US property going?

The US property market is worse than many people think. Consider the following chart by Credit Suisse.
Basically it shows that we are half way through the financial foreclosure process. We have experienced the worst of the sub-prime crisis, but now we are about to be hit by ARM resets. These low-interest teaser loans will gradually reset at the variable interest rate. Over the next 2 years they will cause the same type of carnage as the sub-prime loans.
I say this not to give you any false hope, but so you might be better prepared for the future. The fact that the banking system will have worked its way through these loans is not meant to imply that we can see the light at the end of the tunnel. The market has to absorb these loans before we will see any restoration of economic activity that is not sponsored by government stimulus measures. But consider why the economy is where it is:
1. House prices are collapsing - this places a lot of people in a position of having negative equity. More than anything else this will cause consumer confidence to shrink. The most indebted will be walking away from their homes. Some people were really sucked in by the rhetoric and easy credit terms.
2. Home repayments are increasingly moving to a variable rate (i.e. ARM resets). This is hardly a problem as long as interest rates remain low (which is the case as long as the Fed keeps lowering the Fed rate) and inflation doesn't break out.
3. The unemployment rate does not plummet too much

You might wonder (given the downward spiral caused by a deterioration in unemployment) what it would take to restore confidence in the market. Clearly there is not going to be private sector lending as long as asset prices are collapsing. The government is going to some lengths to make up the difference, but government spending is no substitute for private spending and investment. How long before the US and other governments will be forced to print money to fund all sorts of stimulus measures. Does anyone believe this debt is going to be repaid? Well no doubt there will be some dilution in the value of the USD, as well as the prospect of higher interest rates when confidence is restored and asset prices stabilised. The first priority for the government is to stability or 'refloat' asset prices. When that occurs they can raise the Fed rate again to lift US savings. This might be tough medicine as its going to be accompanied by higher inflation. The message being....the pain of resets is just part of the story. In effect governments will be absorbing private sector debt with public debt. Wasteful expenditure with more wasteful expenditure. Their intent of course is to defer the problem rather than deal with it. Their solution is absorbing debt with more debt. Sounds kind of meaningless doesn't it.
So what do the ARM resets tell us about the US property market? Well we must remember that they are only a portion of the total credit outstanding. There are more secure loans with lenders who will also be struggling with unemployment and negative equity considerations. At some point however investors are going to re-enter the market. So we ought to be looking at yields on US property. If you are looking at capital growth properties, then you will need to wait longer, but for other areas there are buying opportunities now. We must remember that the US is not a single market; that property did not universally rise across the country. Some areas did not rise at all. The problem for many people is that they choose or cannot live where the reasonably priced properties are located. But I would suggest in the US there will be better buying opportunities ahead - even in rural areas. Just wait for the currency to collapse.
I am confident that equity markets have reached their bottom. I would expect them to tread sideways for the next 5 years in a series of rallies, so be prepared to trade your positions. For property, I would expect similar sideways movement with inflation undermining real property values in the city; so I don't necessarily see significant falls to come. The trends suggest capital growth properties are still falling but that rural property values have stabilised. For this reason, in countries like Australia and NZ where the currecy has already collapsed, you can start buying rural properties where value remains.
As long as they are not city lifestyle or tourist havens....since these forms of property are overvalued and going to remain a pariah for the next few years. Your best guide is yields and nominal prices. In any case. avoid the cities where there is going to be an overhang.

Andrew Sheldon
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Over the years, this ebook has been enhanced with additional research to offer a comprehensive appraisal of the Japanese foreclosed property market, as well as offering economic and industry analysis. The author travels to Japan regularly to keep abreast of the local market conditions, and has purchased several foreclosed properties, as well as bidding on others. Japan is one of the few markets offering high-yielding property investment opportunities. Contrary to the 'rural depopulation' scepticism, the urban centres are growing, and they have always been a magnet for expatriates in Asia. Japan is a place where expats, investors (big or small) can make highly profitable real estate investments. Japan is a large market, with a plethora of cheap properties up for tender by the courts. Few other Western nations offer such cheap property so close to major infrastructure. Japan is unique in this respect, and it offers such a different life experience, which also makes it special. There is a plethora of property is depopulating rural areas, however there are fortnightly tenders offering plenty of property in Japan's cities as well. I bought a dormitory 1hr from Tokyo for just $US30,000.
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The Philippines property market remains one of the strongest in Asia thanks to rising incomes, rising population and rapid rates of urbanisation. The administrative reforms of the Arroyo government have given way to improved administration under Aquino. ASEAN countries can be expected to achieve even greater price gains than Western markets, demonstrating that this super cycle is far from over.

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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

'Buying NZ Property – Download the free sample readings!

The NZ property market is shaping up as one of the most attractive property investment markets for the next few years. High yielding property and the collapse of the NZD make NZ the perfect counter-cyclical investment if you buy right! In addition, there is no capital gains tax, transfer taxes, VAT/GST or wealth taxes in NZ, so rest assured that NZ property is tax-effective! Learn more now!

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