Dear Reader,
1) Talk about a slap across the cheek this morning! One of the most reliable recession indicators in history is the ‘tall building effect’.
It’s the idea that record-high skyscrapers have a nasty habit of opening in recession. It’s not a new idea. But it’s an important one!
And what do I see this morning? A developer has plans to build Australia’s tallest building in Southbank, Melbourne. It will cost a cool $2.7 billion.
The article reports:
‘The 210-room hotel on the 63rd floor is expected to open its doors for its first guests by 2028.’
There you go.
You can expect Australia — and the world — to be in a deep recession at this point.
Let me be clear…
It’s not just the tall building effect that makes me say that. It’s the entire history of the property cycle in the Western countries driving toward that date like a freight train.
If you don’t understand this, then you’re flying blind with your life savings. I suggest you do everything you can to make sure you understand it.
Go here to learn about it all now while it’s available.
2) Speaking of the property cycle, I see mortgage insurance firm Genworth has popped up as a potential beneficiary of the current property boom.
I took a look at this stock a few months ago. It seemed to me that it might be worth a shot.
From memory, there was a question whether CBA would renew their contract with Genworth. That was hanging over the stock like a heavy bit of lead.
However, as I dug into the story, it was also apparent that their contract with NAB was also coming up for renewal in the near future.
That meant the risk was too high for me. Any loss of either of the contracts would hit the stock in the guts, hard.
And while Genworth is a pretty good cash cow, it only plays in the Aussie market, putting a limit on its earnings.
This is not to say owning or buying Genworth is a bad idea, only I didn’t think the reward and the risk really stacked up at the time. I think you can do better with other property plays.
Right now, I prefer the mortgage lenders. These are the guys making the loans, with the potential benefit of higher interest rates to cream more fat off the top.
There’s also a vague sense that the property boom is going to fizzle out or be cut off at the knees through the Reserve Bank lifting the cash rate.
I don’t think either of those things are going to happen. There is just too much money to be made in the property market still.
The fact that such scepticism exists tells us that there’s not enough hysteria or ‘new paradigm’ thinking to suggest a true, historic bubble.
In fact, I’ve been writing to my colleagues over in the US to tell their subscribers to start buying up Aussie REITs.
The US dollar is overvalued relative to the Aussie, I believe.
It makes sense for American investors to park cash here, get higher yields than they can at home, and benefit from potential currency appreciation of the Aussie.
I would suggest foreign capital is going to keep coming here, just for safety if nothing else.
All in all, it’s onwards and upwards as far as the property cycle is concerned, at least for me!
3) Here’s something a bit weird for me. Disney, the American movie giant, is planning to create housing communities in the US.
Why would an animation studio want to do this?
Is this an example of what fund manager Peter Lynch called ‘diworsification’ — where a company steps outside its area of expertise?
Maybe. Maybe not. One argument is that it’s a logical extension of their theme park business.
I suppose if you can have housing around a golf course, why not a Disney community?
However, it also signals the creeping corporatisation of the land market everywhere, no doubt with rules about ‘family’ behaviour and ‘acceptable’ viewpoints, all in accord with ‘Disney values’.
Urgh.
Perhaps it is symptomatic of where the world is heading as the property boom leaves its trails of distress we like to ignore as a society.
I read now that some cities are forcibly removing homeless people from subways and doorways because they blight the area. Where they go, I have no idea.
Perhaps the future is for the rest of us to gate ourselves off in specialised, secured communities with likeminded ‘folk’.
Disney seems to think so.
All the best,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Don’t be shy! Come check out my podcast on Spotify here. We have some great content…all free. Let me know what you think!
