|
Written by José D. Roncal
|
|
Tuesday, 20 July 2010 21:48 |
Since the global economic meltdown struck, real estate values around the globe have been depressed and government deficits and mounting debt still exist. But opportunities in both commercial and residential properties are still possible. It all depends on how much risk you're willing to take and how much money you still have left to play with.
Finding the right opportunities requires more than just money and moxie; it also calls for some innovative thinking. For instance, we've all read about how banks are holding vast portfolios of properties from defaults—both in the US and abroad, and from both residential and commercial properties. The news looks grim. But a risk-taking innovator can see opportunities hidden even in the distressed real estate industry. There are speculators that recognize the advantages of acquisition and disposition of those loan and property portfolios.
If you've read our book,The Big Gamble: Are You Investing or Speculating?, you know that we point out the importance of understanding the difference between the two, and that even when you think you're making a wise investment, you are always just speculating. But that's not to say that speculating is a bad thing, at least not when it's backed up with research and a solid understanding of the industries in which you put your money.
When speculating in real estate for instance, a savvy speculator will consider more than the future value of individual properties. They look at the big picture, the underlying land, the cities, and surrounding areas and ask, "What is the area's projected growth? What industries currently exist there or soon will be, and what is expected to add to the population? Is there a likelihood of increasing demand for affordable housing? They also look to see who else has already put their money there, or who is considering doing so. Money attracts money.
A whole section of our book covers famous speculators who knew how to do their homework, and in the process helped boost economic growth and job creation. One of those speculators was Donald Trump. In any economic condition there will always be speculators like Trump who see potential and opportunity, while others see only ruin. In Trump's own words, "I’ve always made more money in bad markets than in good markets."
All eyes will be on Trump once again as he takes a close look at the former Soviet republic of Georgia as a potential site for his trademark casinos and golf courses. His interest was piqued after a conversation in New York with President Mikheil Saakashvili.
The Georgian leader is looking for ways to revive foreign direct investment after taking a big hit during the global economic slump. So far the United Arab Emirates has committed to a $1 billion investment over the next two to three years. Qatar also pledged to sizable investments in Georgia.
Trump has a nose for money. He wins some, he loses some, and it's too early to know how the George deal will play out. But what we do know is, Trump is a classic example of a world-class speculator and high-stakes risk taker.
Where will the next opportunities arise for those willing to take the risk? Looking long term in the real estate sector, consider the projected populations growth around the globe. Over the next 25 years, shelter will be needed for two billion people—with most of that growth in Asia, an area that has a projected population growth rate eight times faster than Europe's. That's not going to help much in the short term, but the point is, don't let innovation be stunted by the bad news at hand. Think outside the boundaries. The best ideas often come in the most unexpected ways.
When you readThe Big Gamble: Are You Investing or Speculating?, our section on famous speculators might give you just the incentive you need to be open to new ideas, and maybe catch the big one before it gets away. |
|
|
Written by José D. Roncal
|
|
Thursday, 01 July 2010 19:30 |
As Congress continues to dicker over details of the proposed Wall Street reform, there is a sideshow going on in the background that, so far, isn't getting as much attention.
Reform is intended to lay new ground rules to prevent the problems of the past from reoccurring—problems like those created by derivatives, credit default swaps, and other exotic vehicles that were linked to the catastrophic housing bubble. But before reform is even finalized, some analysts are already raising concerns about the next big bubble.
In our bookThe Big Gamble: Are You Investing or Speculating? we layout the whole historical landscape of financial bubbles from tulips, to dot-coms, to housing. If we were able to go back and add another chapter, we'd probably call it, The Future Bubble: Bonds.
Yes, bonds may well be the next story to make financial headlines. But unlike the tech bubble of the late 90s, the bursting of the bond bubble, if indeed there is one coming, will not be preceded by exuberant tales of speculators making a killing. Bonds are the last place you'd go if you were looking for quick profits. But when stock values sink, bonds become like magnets.
Consider what happened when the tech bubble burst in 2000 and equities lost almost half their value. During the following three years we witnessed corporate bonds grow by nearly 50%. More recently, during the meltdown of 2008, when baby boomers suffered big losses to their stock portfolios, their first reaction was to rush headlong into bond funds. In a most unlikely scenario, U.S. Treasury bonds, with their near-zero interest rates, were not only attractive picks, they actually turned out to be one of the few investments that stayed on a relatively even keel.
Now bond funds are projected to get an infusion of about $380 billion in 2010—that's more than went into U.S. equity funds during the entire past decade. Last year alone, a record $376 billion went into bonds. And in recent weeks, because of concerns over Europe's debt problems, investors skittish about equities are rushing back into treasuries again.
The belief that bonds are a safe haven continues to fuel the feeding frenzy. While it's true that bonds have historically been less volatile than stocks, the fact is they lose money just like equities do.
By any measure, this much money pouring into a particular market segment tends to signal a bubble in the making . . . and the bond market might be ripe for a downfall.
Despite the recent uptick in Treasury bond prices, current near-zero interest rates have nowhere to go . . . but up. The Treasury market will eventually reach critical mass and investors will no longer accept such low returns. That may force the Feds to raise interest rates sooner rather than later.
When they do eventually raise rates, and naturally they will, then the prices for existing bonds with locked-in rates are going to drop. Why? Because investors will buy newly-issued bonds that pay a higher interest rate.
But so far the Fed feels no pressure to raise rates or to tighten credit. Why would they? Just look around. With the economy still limping along at a slow pace, credit is still about as tight as it can get.
Keep your eyes on the bond market and be aware of where you are putting your money. If you need some background or guidance on what causes a financial bubble, read our book,The Big Gamble: Are You Investing or Speculating?. You'll find plenty of good information about how to spot and avoid the next bubble, whatever it might be. |
|
|
|
|
|
