Dear Reader,
1) Oh my. Since December, Catherine Cashmore and I have been telling you to put the property cycle at the heart of your investment strategy. A bit of news from developer Mirvac is a case in point.
The Australian Financial Review reports that the company will ‘press the button’ on entering the land lease sector.
This is following on from the pioneering work of James Kelly and his Lifestyle Communities business.
What is land lease, exactly?
This is where home buyers are exactly that!
They buy the physical house but lease the land on which it sits. Why would you want to do such a thing?
The general pitch is that you can free up equity in your existing home, pay a lot less for your next house, and use the leftover cash to fund your lifestyle.
It’s a very reasonable proposition for those with meagre to middling super balances. I even have it in mind for my parents.
I live down on the Mornington Peninsula here in Victoria. There are a few of these communities. I checked out a couple a while back.
They are a bit tight, house-to-house, but I can see the appeal.
But it’s also a profitable business for any developer that can get their land at a good price and pack out their community.
They get a regular stream of income and any upside from the locational value they still own.
Mirvac entering this space is a clear demonstration of them finding an additional way to monetise the property cycle. You should be doing the same thing.
That’s why Catherine and I did a presentation on this very idea. You can check it out here.
One of the stocks I recommended in the special report to go along with this is also moving aggressively into the land lease space.
That’s a major reason why I like it. Australia is full of baby boomers with limited cash flow but lots of property equity. The tailwind for the sector is huge.
I suggest you start following it. Maybe you’ll even consider the idea for yourself!
2) We’re really getting into the nitty-gritty of the ASX in the next two weeks.
Companies will be showering us all in their results for the past six months…and the outlook coming up. Expect volatility for any stocks that surprise, either up or down, positive or negative.
Meanwhile, the big bad world is overshadowing everything. We have Ukraine under (supposed) threat, inflation ratcheting up in the US, and the uncertainty around Taiwan.
Why does anyone care about Taiwan? As far as the West goes, it’s because so much of the world’s semiconductors (‘chips’) are made there.
Last week I saw that the European Union wants to spend 43 billion euros to expand its own semiconductor industry.
This follows on from the news that US tech behemoth Intel is going to spend up to US$100 billion building a chip plant in Ohio.
This looks like the market is saying an invasion of Taiwan is now a matter of when, not if. At the very least, the stakes are too high to leave any possibility to chance.
China believes the same thing, in terms of the importance of this industry.
Don’t forget China nominated semiconductors as one of the industries they want to develop domestically a couple of years ago. It was said they spent more money importing chips than they do oil.
Whether that remains the case when oil is US$95 and not US$50, I’m not sure. But China is now getting pummelled with a high oil price alongside booming coal and LNG prices.
High energy costs like this hurt a big commodity importer like China.
One wonders how much more they can sustain before cracks start appearing in their tidy narrative of 5% growth for 2022.
What am I driving at? I think we’re in for a lot more volatility in 2022 — it’s a trader’s market.
Do make sure you check out the work of my colleague Murray Dawes and his Pivot Trader service.
Murray came on my podcast before Christmas to warn about rising yields in the US. We then saw the ASX get carted for six in January.
But it threw up buying opportunities too. And not every stock gets smashed. BHP, for example, is up 17% since the start of January.
With oil pressing to US$100, there’s a clear case to trade the energy sector. Murray already has his readers in one trade on this theme…I’m sure there’s more coming too. Check it all out here.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
