Dear Reader,
1) Mr Market is a little bit of out of sorts right now.
We had the big dip in January…but I’m not seeing much of a bounce back yet either.
Earlier in the year, Mr Market was probably waiting on the earnings announcements from the big US tech companies.
Alphabet Inc [NASDAQ:GOOG] (Google) delivered a barnstorming result. Meta Platforms Inc [NASDAQ:FB] (Facebook)…not so much! It got walloped 20%.
Cue the naysayers and the critics of Zuckerberg coming out in force.
I’m not sure that’s the right tone after one quarterly miss.
How I remember the catcalls and derision when Facebook IPO’d back around 2012 and tanked soon after.
Little did most realise Zuckerberg was launching one of the greatest businesses of all time to hit the stock market.
That begs the question…do you or I buy the dip here?
It’s worth a thought. One reason is that Zuckerberg is taking the business in the direction of virtual reality and the metaverse. Surely that is where the future lies.
My friends recently took me to a VR gaming place in Melbourne as a fun way to celebrate my birthday. The game was rudimentary, really.
But that’s today.
I have no doubt in 5–10 years; the danger will be never wanting to take the glasses off. It will be so immersive as to be real.
And it’s not as if Facebook doesn’t remain a powerhouse, both in terms of sheer scale and revenue.
However, it’s not yet clear that the US market isn’t in for some more pain.
This is the dilemma of buying ‘the dip’. Further falls can make you question your conviction to hold on.
I’m going to watch for a while longer. I don’t follow the sector closely enough to declare confidently that it’s well and truly inside my circle of competence.
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2) I’m on much surer ground when it comes to Australian property.
Catherine Cashmore and I have told you for some time that South East Queensland and Perth were our favourite property locations for the second half of the cycle.
One driver of this is buyers priced out of the Melbourne and Sydney markets heading elsewhere.
Look at this report from the Australian Financial Review recently:
‘Greenfield housing land values in south-east Queensland have doubled in some cases in the past two years as unprecedented numbers of southern developers target the fast-growing region.’
This strength is not going to discontinue tomorrow.
What is the flow-on from this activity?
Homer Hoyt — the first man to identify the 18-year cycle — tells us in his 1933 book One Hundred Years of Land Values in Chicago.
The answer is more mortgage debt, of course!
We can see that in the data.
This week, the Reserve Bank released the December credit statistics. You can see them here if you like.
Housing credit is up 7% for the year.
History says you don’t have to worry about a real estate crash as long as credit and land values are growing.
You can also look to profit from this on the share market.
We have two mortgage lenders on our buy list trading at very attractive values right now.
They were not immune from the recent market sell down.
But a bit of volatility is a given when you think in terms of the long sweep of the property cycle.
Both are well-placed to profit from the ongoing land boom happening across Australia.
Both are fine stock to accumulate on dips, with an eye to collecting dividends along the way as we march to our expected cycle peak.
You see…there’s that idea of conviction again.
Personally, I don’t worry in the slightest about a property collapse hitting Australia anytime soon.
I’ve seen the property cycle turn practically every day since 2013. I’ve done my homework here too.
Yes…I know the arguments from the bears…blah blah…I’ve heard it all a million times.
Could I be wrong? Yes, of course.
But it would take a gigantic event to shake my conviction here. A piddly interest rate rise from the RBA is not that.
Therefore, any sell down on the market is an opportunity to build positions in companies primed to monetise this cycle.
All the best,
 |
Callum Newman,
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
